A major decline in the Master Settlement Agreement (MSA) payment amount this year is placing downgrade pressure on some U.S. tobacco settlement ABS bonds, according to Fitch Ratings.

The rating agency explained that the amount of annual MSA payments are affected by the tobacco consumption level, inflation rate, and state-specific adjustments.  

Certain long-term turbo bonds and many capital appreciation bonds are therefore at risk for a downgrade of approximately one to three notches.

A substantial decline in tobacco consumption, highlighted by a 10.4% decrease in shipments, contributed to a 16.4% decline in the 2010 MSA payments from 2009 levels.  

Last year’s payment was also inflated because of an abnormal release of cash from the disputed payments account, Fitch said.

The credit rating agency expects to complete a review of its entire tobacco settlement ABS  deals  within the next two weeks.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.