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TMCNet:  Fitch Downgrades Nassau County Tobacco Settlement Corp. (New York), Series 2006

[January 10, 2013]

Fitch Downgrades Nassau County Tobacco Settlement Corp. (New York), Series 2006

NEW YORK --(Business Wire)--

Fitch Ratings downgrades seven classes from Nassau County Tobacco Settlement Corporation (New York), tobacco settlement asset-backed bonds, series 2006. A full list of rating actions follows at the end of this release.

For 2012, the aggregate MSA payment was 1.97% higher than the amount in 2011. Fitch published updated Tobacco Settlement ABS (News - Alert) Criteria on July 16, 2012, which included a change in the base case assumption for the MSA payment from +1% to 0%. The rating scale was recalibrated to reflect this change, and as a result there were several downgrades.

The turbo and capital appreciation bonds were put on Rating Watch Negative in July 2012 with the expectation that the change in the base case assumption could lead to downgrades. Buckeye Tobacco Settlement Financing Authority, 2007 (Ohio), along with Golden State Tobacco Securitization Corporation, UNITED STATES Series 2007-1 and Nassau County Tobacco Settlement Corporation, Tobacco Settlement Asset-Backed Bonds, Series 2006, were not reviewed with the other ABS tobacco settlement bonds in August 2012 because the reserve accounts of these transactions were below the minimum required levels and required additional analysis which was completed for this review.

Fitch uses its breakeven model to analyze tobacco performance. The breakeven model assesses how much the MSA payment received by the trust could decline for each bond to pay at the legal final maturity date. The amount of the latest MSA payment that the transaction has received, the capital structure, the reserve account, and the bond's legal final dates are the key inputs to the model.

Since the life of these transactions is typically long and the cash flows can be unpredictable, qualitative adjustments may be taken to avoid rating volatility by requiring two years of consecutive model outputs in order to downgrade to the model implied output. However, if more than one notch difference exists between the current rating and the model implied rating, the bond will be downgraded to one notch above the model output. Tobacco ratings are capped at 'BBB+sf', based on Fitch's opinion of the strength of the tobacco industry. All onds with model outputs 'bbb+' and below are on Outlook Negative to address concern over a future deterioration in cash flows.

Fitch downgrades the following ratings:

--$42,645,000 series 2006A-1 taxable senior current interest bonds due June 1, 2021 downgraded to 'BB+sf' from 'BBBsf'; removed from Negative Watch and assigned a Negative Outlook;

--$37,905,609 series 2006A-2 senior convertible bonds due June 1, 2026 downgraded to 'Bsf' from 'BB+'; removed from Negative Watch and assigned a Negative Outlook;

--$97,005,000 series 2006A-3 senior current interest bonds due June 1, 2035 downgraded to 'Bsf' from 'BB+sf'; removed from Negative Watch and assigned a Negative Outlook;

--$194,535,000 series 2006A-3 senior current interest bonds due June 1, 2046 downgraded to 'Bsf' from 'BB+sf'; removed from Negative Watch and assigned a Negative Outlook;

--$10,670,013 series 2006B first subordinate capital appreciation bonds due June 1, 2046 downgraded to 'B-sf' from 'BB-sf'; removed from Negative Watch and assigned a Negative Outlook;

--$9,867,332 series 2006C second subordinate capital appreciation bonds due June 1, 2046 downgraded to 'B-sf' from 'B+sf', removed from Negative Watch and assigned a Negative Outlook;

--$37,604,290 series 2006D third subordinate capital appreciation bonds due June 1, 2060 downgraded to 'B-sf' from 'B+sf'; removed from Negative Watch and assigned a Negative Outlook.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'U.S. Tobacco Settlement ABS Criteria' (July 16, 2012);

--'Global Structured Finance Rating Criteria'(June 6, 2012).

Applicable Criteria and Related Research:

U.S. Tobacco Settlement ABS Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=682015

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=679923

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.


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