Smith’s Tobacco Gradings

Smith’s Grading of the first tobacco settlement securitization deal , TSAC New York , was 55/3/-1 during November of 1999.  Moody’s rated the TSAC tobacco bonds “Aa3”, while S&P rated the bonds “A” and Fitch assigned a rating of “A+”.  Over the past decade, the rating agencies have downgraded the tobacco bonds until the credit assessments have reached levels consistent with Smith’s Gradings.  Of course, Smith’s Gradings has affirmed its credit assessments and refreshed the research.  Smith’s Recovery Grading was lowered to “1” from “3” because of consolidation in the tobacco industry. Smith’s Event Risk Grading of “-1” indicates the credit is subject to sudden shocks, in this case due to political risk and legal risks.   Smith’s Grading for tobacco bonds provides a dramatic illustration of how rating agencies have cost investors millions of dollars by providing generous credit assessments at the time issuance.


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