The outlook for tobacco bond securitizations remains stable for the time being, said Fitch Ratings. The rating agency said this after the Supreme Court of Florida decided that several tobacco companies do not have to pay a $145 billion settlement stemming from a class-action lawsuit against them.
Last week, the court upheld the Third District Appeals Court decision of May 2003, to throw out a verdict from July 2000 against Altria Group, Reynolds American Inc., and Loews Corp. The Supreme Court of Florida called the punitive damages from the July 2000 verdict excessive, and said the original case was incorrectly certified as a class-action lawsuit on behalf of Florida’s 300,000 to 700,000 Floridians who suffered the effects of smoking, according to the Associated Press.
The Florida case is one of three major cases that Fitch Ratings follows in connection to the 61 tobacco settlement securitizations that it rates. The victory in the Florida case underscores a more favorable litigation environment for tobacco companies, said Fitch.
“The risk of a substantial payout due to an adverse legal decision has diminished with favorable rulings at the state Supreme Court levels in Engle and Price,” said Fitch. “The operating environment has also improved and the major firms have regained pricing flexibility.”
Nevertheless, said the rating agency, several negative factors hover over the tobacco securitization market. Extensive bans on smoking, for one, dampens demand for cigarettes, and excise taxes on cigarettes will chip away at pricing flexibility for tobacco companies.
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