Investors and ratings analysts were somewhat stunned by a jury's $28 billion ruling against Philip Morris, though no one, it seems, expects that to figure stand - else Philips Morris' debt rating would be at risk.

If that were to happen, the securitizations backed by the tobacco Master Settlement Agreement could potentially face credit scrutiny as well, sources said. However, even that is uncertain.

"It is not necessarily true that, if there are downgrades on the tobacco companies, [the securitizations] would be downgraded one-to-one," said Myrna Ekmekji, an analyst at Moody's Investors Service, adding that the securitization group is working closely with the fundamental analysts. "With the tobacco deals, we look at the industry as a whole, and not just one company."

However, Ekmekji added, "At this point we're watching closely to see what's going to happen. We anticipated that there would be individual lawsuits in California against the tobacco companies... But I don't think anyone really anticipated $28 billion."

The $28 billion purse, awarded by jury to California plaintiff Betty Bullock to cover punitive damages (compensatory damages were less than $1 million), is just the latest in a string of California lawsuits against Philip Morris that began in the late 1990s. As with the other lawsuits, the judge in the Bullock case will likely reduce the award substantially. Last year, for example, a jury awarded a defendant $3 billion, and the judge reduced that amount to about $100 million. In that instance, the compensatory damages were $5 million.

"By and large, what matters is what is entered by the judge," said Christophe Razzaire, a corporate analyst on Philip Morris at Moody's.

There is still a large degree of uncertainty, which will remain until the appeals are heard at the state Supreme Court level. Currently, an appellate judge has affirmed one of the early California rulings, though the California Supreme Court has yet to review it. "Fundamentally, we don't know if any of these decisions can withstand appeals," Razzaire said. "It's a little complicated because some of the earlier cases might be thrown out for other accounts."

Since the early cases, California ruled that evidence in the tobacco complaints from the years of 1988 to 1998 is inadmissible in court, which complicates the issue.

"There is uncertainty, and I want to stress that the range of possibilities goes from affirming the cases in their entirety to tossing them out in their entirety," Razzaire said. "What it boils down to is this: Are tobacco product-liability cases in agreement with general California tort law? Ultimately, only the California Supreme Court can answer this question."

Securitizations could conceivably remain unscathed, even in a Philip Morris worst-case scenario.

Essentially, the analysts that stressed the deals are betting Philip Morris' financial woes will not impact the American consumer's propensity to smoke. Even in the remote possibility that one of the tobacco giants were to fail as a result of litigation, smokers would still smoke, and competitors would, presumably, pick up the slack, as well as the settlement payments (which are based, in part, on industry market share).

"We look at the total tobacco industry and where our corporate tobacco analyst's views are regarding the creditworthiness of the tobacco industry," Moody's Ekmekji said. "Rating action on any tobacco transaction will depend on the specific transaction's structure and rating." \

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