LOS ANGELES — The California County Tobacco Securitization Agency on Oct. 21 plans to price a $95.5 million refunding of 2002 tobacco bonds issued for the Kern County Tobacco Asset Securitization Agency.

The finance team includes Raymond James & Associates as book-running manager, KNN Public Finance as financial advisor, Sidley Austin as bond counsel, and Orrick, Herrington & Sutcliffe LLP as underwriter's counsel.

The pricing will refund $105.2 million in tobacco settlement asset-backed bonds issued in 2002 for the Kern County tobacco agency.

Ahead of the sale, Fitch assigned a BBB-plus sf rating to the Series 2014 bonds maturing on June 1 in the years 2015 through 2029 and a BBBsf to term bonds maturing on June 1, 2034 and June 1, 2040. The term bonds maturing on June 1, 2029 were included in the BBB-plus sf category.

The 'sf' denotes a structured financing.

Standard & Poor's rated the 2002 bonds BBB on Feb. 10, 2012, but wasn't asked to rate the planned refunding.

Fitch said it caps tobacco settlement ratings at BBB-plus sf, one notch above the rating agency's view of the tobacco industry.

The agency is a special-purpose corporation that is independent of Kern County. Kern receives 1.01% of the payments disbursed to California's 58 counties under a memorandum of understanding. The state receives 12.7% of the payments made by the tobacco companies under the settlement.

Tobacco bond payments are made using funds 46 states receive from the 1998 Tobacco Master Settlement agreement. In the agreement, the major tobacco companies agreed to make annual payments to states over a 25-year period estimated then at $200 billion based on consumption.

Many of the state's tobacco bonds were bumped to junk ratings when states were forced to use reserves to make payments after tobacco consumption levels took a dive during the recession. The preliminary official statement warns that "there is currently a limited secondary market" for tobacco settlement securities.

U.S. cigarette consumption has declined from 465 billion annually in 1998 to 274 billion as of Dec. 31, 2013, according to IHS Global, an international econometrics and consulting firm. Consumption is expected to drop to 122 billion by 2040, according to IHS.

The bonds can withstand a maximum 7% annual decline in cigarette consumption, according to a slide show for prospective investors.

The bonds have no recourse to the county, which sold its rights to tobacco settlement revenues to the Kern County Tobacco Funding Corporation.

Proceeds in excess of the amount needed to pay off the 2002 loan will be released to the county as residual certificate holder.

The conduit issuer for the bonds is a an agency created through a joint exercise of powers agreement between the counties of Kern, Merced, Stanislaus, Sonoma, Los Angeles, Marin, Placer, Fresno and Alameda.

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