Seven Ratings Affirmed On Michigan Tobacco Settlement Finance Authority Series 2006 And 2007

Stocks and Financial Services Press Releases Thursday February 1, 2018 09:17
NEW YORK--1 Feb--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 31, 2018--S&P Global Ratings today affirmed its ratings on one tranche from Michigan Tobacco Settlement Finance Authority's series 2006 A and six tranches from series 2007 (see list).

Class 2006 A from series 2006 was originally issued and rated in 2006 and is a current interest turbo term bond maturing in June 2034.

The six outstanding classes from series 2007 were originally issued and rated in 2007 and consist of four current interest turbo term bonds and two capital appreciation turbo term bonds maturing between 2022 and 2052. Capital appreciation bonds generally capitalize interest until all senior notes have been paid in full, so they tend to have the most risk.

The rating actions reflect our view of the transactions' performance under a series of stressed cash flow scenarios, including: A cigarette volume decline test that assesses if the transaction can withstand annual declines in cigarette shipments;Payment disruptions by the largest of the participating manufacturers, by market share, at various points over the transaction's term to reflect a Chapter 11 bankruptcy filing; andA liquidity stress test to account for settlement amount disputes by participating manufacturers, as a result of changes to their market share, which continues to shift to nonparticipating manufacturers.The affirmations reflect our view of the likelihood of making timely interest and principal payments under stress scenarios commensurate with the current ratings.

Our analysis also reflects developments within the tobacco industry. We view the U.S. tobacco industry as having a stable rating outlook based on the high brand equity and pricing power of the top three manufacturers' conventional cigarette brands.

In our view, this should help offset ongoing cigarette volume declines and allow for sustained cash flows. However, changing regulations and ongoing litigation risk are constraining factors the industry faces.

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