The Bonds were issued in 2007 and originally refunded the Series 2003A transaction issued by the Corporation. The collateral for the securitization is a pledged percentage of annual payments made by the tobacco participating manufacturers (PMs) under the 1998 Tobacco Master Settlement Agreement (MSA).
Under the MSA, payments to the states are subject to various adjustments, including the inflation adjustment, volume adjustment, and NPM adjustment. The inflation adjustment increases the base amounts of the MSA payments, based on the higher of the percentage increase in the consumer price index for all urban consumers and 3%. The volume adjustment increases or decreases the MSA payments by an amount that accounts for fluctuations in the number of cigarettes shipped by the OPMs in or to
Under the MSA, three conditions must be met in order to trigger an NPM adjustment: 1) a market share loss was experienced for the applicable year; 2) a nationally recognized firm of economic consultants determines that the disadvantages experienced as a result of provisions of the MSA were a significant factor contributing to the market share loss for the applicable year; and 3) the settling state in question are found to not have diligently enforced their qualifying statutes. The PMs have disputed MSA payments related to sales years dating back to 2003.
KBRA considered several key factors in its analysis of this transaction, including:
- Recent normalization of tobacco consumption decline following several years of above-average declines.
- The credit quality of the large tobacco participating manufacturers, which has strengthened in recent years.
December 2012settlement term sheet as it relates to the signatory jurisdictions, including the State.
- The popularity of current and future tobacco alternatives, including E-cigarettes, and their market acceptance and penetration.
- The potential for litigation that may have a material impact on the PMs or the MSA.
- Other potential risks to demand, including reduction in discretionary income and other recessionary patterns that may have a meaningful impact on tobacco consumption.
KBRA analyzed the transaction using KBRA’s General Rating Methodology for Asset-Backed Securities published on
The rating on the serial bond maturing in
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Senior Managing Director
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