More than $5 billion in tobacco settlement ABS came to the market last year compared with no issuance in 2004. The resurgence of issuance is being fueled by a string of positive litigation rulings and low interest rates, among other factors.

Fitch Ratings is anticipating a stable outlook for the sector, with a potential for further issuance growth in 2006 as last year's positive conditions continue to affect investor demand for the bonds. Tobacco settlement bonds are issued by cities, counties, states and territories and are backed by future revenues from the 1998 master settlement agreement with Philip Morris USA Inc., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp. and Lorillard Tobacco Co. Since the agreement, nearly $32 billion in tobacco settlement bond issuance has come to the U.S. market.

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