Skip to comments.Fitch Lwrs Golden State Tobacco Securitization Corp., CA to 'BBB'; Rating Watch Continues
Posted on 01/12/2004 7:22:40 PM PST by calcowgirl
NEW YORK--(BUSINESS WIRE)--Jan. 12, 2004--Fitch Ratings lowers the rating assigned to Golden State Tobacco Corporation's enhanced tobacco settlement asset-backed bonds, series 2003 B to 'BBB' from 'A-'. Certain of the maturities are insured; for these maturities, the action pertains to the underlying ratings. The rating remains on Rating Watch Negative.
While pledged tobacco settlement revenues are the expected source of payment, ultimate security and the rating are based on the covenant that the director of finance will request the governor to include in the annual state budget act an appropriation for the full amount of debt service and operating expenses due on the bonds in the next fiscal year. Consequently, the rating on these bonds reflects the state's credit.
The rating on California's general obligation bonds was lowered to 'BBB' from 'A' on Dec. 18, 2003, due to a widening budget gap, the intention to increase the amount of deficit funding and the magnitude of measures necessary to restore balance. The rating remains on Rating Watch Negative to reflect the potential for further financial deterioration.
The settlement was reach based on the industry's appraisal of it's net revenues in the California market. Those appraisals were reached based on the covenant that California would not poison the market with usurious taxes.
Today, the California legislature is considering a large increase in sin taxes and Schwarzenegger is siphoning a fair percentage of the existing tax away from its intended purpose to close the $22B structural deficit the state faces by July 2005.
Both moves make the bond market very nervous.
I'm really wondering how attractive the unprecedented bondage is going to be to bond investors even at "Junk Bond" interest rates of an extreme nature. With interest rates generally required to rise with an improving economy, bonds become severely unattractive to investors and sellers will have to discount for anticipated interest rates!!! (yes, that applies to government bond trading too)
To taxpayers, this will amount to a tax increase anyway, even if the economy improves as the interest cost on this debt service will be enormous!!! So how does this solve anything. We'll still be stuck with enormous government employee Union Contracts and illegally overpriced energy contracts that should be voided and re-negotiated!!!
The damage by Demicrats and their dorky Duffus lives on in the long, long term. Ok, we've got our Repellican Governor, now we need the catharsis of confronting bankruptcy or revised contracts, in lieu thereof.
Don't nobody buy these dogs inside a bond fund. You have no guarantee of return of principal by waiting till maturity, cause there's no maturity for bond fund shares!!!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.