Though there have been no settlements to date, the next asset-backed bond collateral to arise from litigation may come from suits against lead paint and gun manufacturers, sources said.

As New York metro area municipalities prepare securitizations based on their portions of the federal government's $246 billion tobacco settlement, several states and cities have enacted similarly motivated suits against lead-paint manufacturers and gun makers.

Though the smaller relative size and financial strength of the paint and gun defendants means potential settlements from the lawsuits will probably not bring the dizzying sums associated with tobacco litigation, sources say deep-pocket volume can be found, making the chances for a structured settlement securitization possible in both cases.

"My guess is that [these companies] don't have enough profits on their own to really be that amusing to the lawyers, but they probably took out some insurance from somebody who has a really good balance sheet," said a source.

Sources agree that the lawyers involved will go after the insurance policy, making a securitization of any settlement revenues more likely.

"Any large settlement that provides for an annuity payment has the potential for securitization," said one ratings agency analyst. "We'll look at settlements that are the individual's rights to payment, the tobacco settlement and many sorts of annuity flows that have come from the courts."

In the case of the lead-paint litigation, volume may be easier to find as there are eight lead-paint manufacturers and a lead industry group named in a single suit filed by Rhode Island's Attorney General Sheldon Whitehouse.

Meanwhile, gunmaker suits have been filed on the behalf of such high crime cities as New Orleans, Atlanta and Newark.

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