New York's Suffolk County's tobacco ABS is in the market. The deal, worth $38.1 million, is called Suffolk Tobacco Asset Securitization Corp. Series 2012.
Citigroup Global Markets is the lead underwriter on the transaction.
The offering is backed by the interests and rights in Suffolk County's share of the money under the master settlement agreement (MSA) entered into in November 1998 by 46 states and participating manufacturers. This includes the county's right to receive annual payments to be made based on the MSA.
In giving its preliminary ratings to the offering, Standard and Poor's rated the deal's serial current interest bond as well as its 2032 and 2037 term bonds.
The agency examined the probability that timely interest and scheduled principal payments will be made on each payment date and that ultimate principal payments will be made at maturity.
The rating agency also noted the credit quality of the three largest participating tobacco manufacturers Altria Group, parent of Philip Morris USA, Reynolds American, parent of R.J.
Reynolds Tobacco Co. and Lorillard, parent of Lorillard Tobacco Co.
S&P also spoke of the $3.0 million fully funded liquidity reserve account's ability to cover interest and principal payments for a year.
The rating agency justified the one- to two-notch difference between the preliminary ratings on the current interest serial bonds maturing on or prior to June 2022, those maturing after June 2022 and on or prior to June 2032, as well as the term bonds maturing after June 2032.
The ratings show S&P's perspective of the qualitative differences between the different series.
Even though the results of the firm's cash flow stresses are what analysts view as strong and can
quantitatively support a higher rating level for the bonds maturing after June 2022 and after June 2032, they think that a longer time horizon to legal maturity, or over 10 and 20 years, respectively. makes the uncertainty of their estimates higher. The chance for event risk in the tobacco industry and in tobacco deal also rises, according to S&P.
The rating firm thinks that that the preliminary ratings on the bonds with the longer maturity profiles should be more similar to the tobacco industry's business risk profile and the three largest tobacco manufacturers' current ratings.