Rating Action: Moody's upgrades notes in five tobacco settlement securitizationsGlobal Credit Research - 26 Aug 2022Approximately $158.9 million securities affectedNew York, August 26, 2022 -- Moody's Investors Service has upgraded the ratings of seven tranches in five tobacco settlement revenue securitizations.The complete rating actions are as follows:Issuer: District of Columbia Tobacco Settlement Financing Corporation, Series 2001Term Bond 2, Upgraded to A2 (sf); previously on Jul 26, 2021 Upgraded to A3 (sf)Issuer: New York Counties Tobacco Trust II, Series 2001Super Sinker Term Bond 2, Upgraded to Baa1 (sf); previously on Oct 10, 2017 Downgraded to Baa2 (sf)Super Sinker Term Bond 3, Upgraded to Baa2 (sf); previously on Oct 10, 2017 Downgraded to Baa3 (sf)Issuer: The California County Tobacco Securitization Agency (Alameda County Tobacco Asset Securitization Corporation), Series 2002Ser. 2002 Turbo Bond 3, Upgraded to A3 (sf); previously on Jul 26, 2021 Upgraded to Baa1 (sf)Ser. 2002 Turbo Bond 4, Upgraded to Baa2 (sf); previously on Jul 26, 2021 Upgraded to Baa3 (sf)Issuer: The California County Tobacco Securitization Agency (Stanislaus County Tobacco Funding Corporation), Series 2002Ser. 2002A Term Bond 2, Upgraded to A3 (sf); previously on Feb 20, 2014 Confirmed at Baa1 (sf)Issuer: Tobacco Settlement Financing Corporation (Virgin Islands), Series 2001Term Bond 2, Upgraded to Aa3 (sf); previously on Aug 21, 2020 Upgraded to A1 (sf)RATINGS RATIONALEThe upgrade actions are primarily driven by further deleveraging and the availability of non-declining cash reserves that could be used to pay principal at legal final. Cigarette consumption volumes, the main driver of tobacco settlement revenues, decreased in the 2021 sales year. The negative trends in cigarette volumes are partially offset by an increase in inflation adjustments that positively impacted the revenues available to the bonds. We also take into account the notes' legal final maturities, as notes with relatively short-term maturities are less exposed to the impact of future cigarette shipment declines.Moody's currently expects that US cigarette shipment volumes will decline by 5%-6% per year over the next 3-5 years.Continued shifts in attitudes towards smoking, as well as further regulation, pose very high social risks for tobacco settlement ABS. These identified risks have been taken into account in the analysis of the ABS.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was "Tobacco Settlement Revenue Securitizations Methodology" published in May 2020 and available at https://ratings.moodys.com/api/rmc-documents/67282. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody's could upgrade the ratings if the annual rate of decline in the volume of domestic cigarette shipments decreases, if payments increase due to inflation, if future arbitration proceedings and subsequent recoveries for settling states become more expeditious than they currently are, or, in the case of the New York deals, the number of non-SET paid Tribal NPM packs sold drop significantly below our expectations.DownMoody's could downgrade the ratings if the annual rate of decline in the volume of domestic cigarette shipments increases, if subsequent recoveries from future arbitration proceedings for settling states take longer than Moody's assumption of 15-20 years, if an arbitration panel finds that a settling state was not diligent in enforcing a certain statute which could lead to a significant decline in cash flow to that state, or, for the New York deals, the number of non-SET paid Tribal NPM packs sold do not decrease in line with our expectations.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Sandie Zhang Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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