More than 100 callers participated in Fitch's 11:00 a.m. conference call today on the state of the tobacco industry and the drivers of the recent downgrades. In all, the entire tobacco settlement ABS sector was downgraded, affecting approximately $18 billion in bonds.

Currently, Fitch’s settlement backed bonds – with top classes at ‘BBB’ — enjoy a one-notch separation from the agency’s industry rating, which is now at ‘BBB-’. While these are closely aligned, as the payments to the master settlement are essentially payments by the industry to the states, Fitch believes that the participating tobacco companies are slightly more likely to honor their master settlement payments in bankruptcy than their unsecured debt, mostly because the contract to pay is executory, which means that if the tobacco company continues making payments, the States will not sue them again.

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