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Legislators look to refinance tobacco bonds to help fix budget 

Legislative leaders are still trying to reach an agreement on how to fix the more than $0.5 billion deficit in the current state budget.

They're now looking at getting $247 million by refinancing bonds the state issued to get cash more quickly, after settling its lawsuit against tobacco companies.

Gov. Jim Doyle had earlier suggested a smaller re-financing for $37 million. That was when a hospital tax was still being considered. That's out of the cards now.

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PILEGGI / SCARNATI: Don't skimp on funding for research 

Attorney General Tom Corbett recently said that Pennsylvania is in no position to borrow against future tobacco settlement funds. He opposes the governor's plan in part because of pending litigation before the state Supreme Court which could significantly reduce the amount of tobacco funds the commonwealth receives. WITH LESS THAN three years left under the current administration, this "borrow-and-spend" program will burden Pennsylvania with enormous costs for the next 40 years. Attorney General Corbett should be commended for stepping up to oppose the governor's plan, ensuring that the money remains available to continue the outstanding research programs currently being funded.

Our tobacco research dollars are being spent wisely each year on dozens of exciting research programs in all areas of the commonwealth. Pennsylvania is presently spending more on bioscience initiatives than most other states in the nation.

There is no compelling reason to change the distribution model in place. It is yielding amazing discoveries that benefit the health of all Pennsylvanians.

--JOE SCARNATI, R-Warren, and DOMINIC PILEGGI, R-Delaware, are Senate president pro tempore and Senate majority leader.

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• State using up cash from tobacco lawsuit  

Iowa has spent nearly all of the bonanza it gained from suing tobacco companies in the 1990s.

The cigarette makers agreed in 1998 to pay up to $2 billion to Iowa over 25 years. In 2002, the state sold off the rights to most of those payments for about $500 million in immediate cash. . . .

State representatives gave final legislative approval Wednesday to a bill that would allow the state to sell off remaining future income from the settlement and place the money in the general fund.

Sen. David Johnson said both parties share responsibility for what happened to the money. "When we established it, legislators from both sides of the aisle saw it as a source of funding for many years," the Ocheyedan Republican said. This year's Legislature is using what's left to finance anti-smoking efforts and related activities, he said.

"Now, we're staring down the barrel of a $30 million problem next session," he said.

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Move to tap tobacco money in Suffolk  

The Suffolk Legislature has taken the first step toward selling the rights to future tobacco settlement money for up to $50 million in upfront cash next year.

But foes say that while the move may be a boon to Wall Street, it could be a long-term bust for future taxpayers.

The lawmakers voted 14-4 shortly before midnight Tuesday for an emergency resolution to create a local development corporation to solicit proposals from Wall Street firms on how to structure the deal -- which will ultimately have to be brought back to the legislature for final approval.

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Doyle's plan to get cash could cost $94M in tobacco payments 

Gov. Jim Doyle's plans to get cash to offset the state's budget shortfall will cost the state $94 million down the road, according to an independent analysis.

Doyle wants to refinance a loan so the state can use more of the money it receives from tobacco companies to pay for state health programs for the poor.

An analysis released by the Legislature's nonpartisan budget office showed the delay in paying off the debt will cost taxpayers $94 million. . . .

"I don't call that anything other than essentially what McCallum did," Todd Berry, president of the Wisconsin Taxpayers Alliance, said of Doyle's refinancing plan. "We were told we weren't going to repeat the tobacco problem."

As attorney general, Doyle helped win a settlement with tobacco companies over the costs of smoking.

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• Fitch Upgrades 237 and Affirms 24 Tobacco Settlement Asset-Backed Bonds 

Fitch Ratings has upgraded 237 and affirmed 24 outstanding Tobacco Settlement asset-backed bonds as listed below. These actions complete Fitch's review of its tobacco ABS ratings that began with the placement of the bonds on Rating Watch Positive (RWP) in September 2007. . . .

The corporate rating of the domestic tobacco industry incorporates the creditworthiness of the domestic tobacco subsidiaries on a stand-alone basis, without reliance on parental financial support. The recent corporate rating actions reflect the operational and financial improvements of the major industry participants over the past two years and the continued manageability of litigation risk. Fitch's assessment of the domestic tobacco industry centers on class action cases with the greatest near-to-intermediate term risk. Beyond the legal issues, there are several continuing negative pressures on the tobacco industry including extensive smoking bans which diminish demand and rising excise taxes that can reduce pricing flexibility. Despite these industry factors, the tobacco businesses generate substantial free cash flow.

In addition, Fitch has incorporated revised cash flow stresses

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• STRICKLAND: Opposing view: We're reducing smoking 

Bob Bauman of Toledo had smoked and chewed tobacco for 45 years. A call to the Ohio Tobacco Prevention Foundation's quit line helped him begin living tobacco-free. Even more encouraging, Bauman was the 25,000th Ohioan to stop using tobacco with help from the counselors on the quit line.

The state-funded foundation, with more than $300 million of assets in reserve, continues to provide support for effective efforts to reduce tobacco use and ensure that young people understand the dangers of tobacco.

The bottom line is that smoking in Ohio is being reduced. . . .

While we continue improving the health of Ohioans and winning the fight against tobacco use, I successfully led a bipartisan effort to securitize the assets from Ohio's tobacco settlement. In effect, we replaced uncertain future revenue with actual dollars in hand.

These funds will pay for 250 new schools. These are debt-free facilities built with advanced environmental standards that will serve Ohio schoolchildren for generations. And we funded a tax cut that ensures those over 65, and the disabled, will not pay one penny of property taxes on the first $25,000 of value in their homes.

Let me say clearly that Ohio is committed to reducing tobacco use and protecting Ohioans' health. We are doing just that. But we are also committed to pursuing innovative solutions to make the absolute best use of our resources to benefit the people of Ohio.

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Tobacco bonds will result in $8.3M for Guam health care  

Gov. Felix Camacho yesterday signed the documents necessary to close the Guam Economic Development and Commerce Authority Tobacco Settlement Asset-Backed Bonds Series 2007, according to a news release from the governor's office.

"We are very pleased with the response we have gotten on the tobacco bonds," Camacho said. "My administration worked closely with our financial advisors and underwriters to ensure that we could get the maximum yield for the people of Guam."

The bonds were issued to refund outstanding 2001 Tobacco Settlement Asset-Backed Bonds

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LEHMANN: The Great Tobacco Bond Scam  

The latest iteration of the municipal tobacco bond issuance is a $5.5 billion issue by the state of Ohio. In all, some $16 billion of such bonds are being issued this year alone. The category deserves the appellation "scam" because the chances that investors will ever see their money again are slim. . . .

There is nothing conceptually wrong with the states issuing these tobacco bonds if it were done on an honest basis. For example, have the bonds provide assurances that the state would replace the revenue stream provided by the MSA with an increase in the state cigarette tax should the agreement unravel. Since this would only replace one tax with another, the price of cigarettes could stay the same.

But then, why make such a promise? The upper limit of cigarette tax rates has not yet been found, nor have we reached a limit of sucker investors.

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CAPITOL NOTEBOOK Ohio outdoes Michigan when it comes to tobacco bonds 

J. Pari Sabety, the state's budget director, was basking in the glow of a compliment by Ohio Treasurer Richard Cordray at a press conference last week.

The normally serious Sabety had a big smile on her face when Cordray said she deserved a lot of credit for the $5.05 billion the state got from the sale of tobacco bonds.

When given a chance to speak, however, Sabety said she was happy to report Ohio did better than Michigan

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Ohio's Record Buckeye Bond Sale Leads Week, Boosts Tobacco Debt 

Ohio sold $5.5 billion of tobacco- settlement bonds in a record deal that led long-term borrowing by U.S. state and local governments this week and calmed concerns that demand for such lower-rated debt was drying up. . . .

Among planned tobacco sales, those from Wisconsin and Louisiana include refinancing components. Puerto Rico in August shelved a $238 million proposed offering of higher-cost subordinate-lien bonds. Pennsylvania officials have yet to get full approval to borrow $500 million against their share of the windfall.

Market Grows

States, counties and other U.S. entities have sold more than $39 billion of tobacco-settlement bonds in the past nine years, according to Bloomberg data. Ohio's sale, to fund capital spending on public schools, colleges and universities and pay for a tax break for seniors, was the largest at one time.

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Ohio's Tobacco Bonds Gain in First Day, Bolstering Muni Market 

Bonds from Ohio's record $5.5 billion Buckeye Tobacco Settlement Financing Authority offering advanced in their first day of trading, helping give a lift to the broader market for state and local government debt.

The yield premium on the largest batch of the Ohio bonds -- a $1.4 billion tax-exempt issue with a 40-year maturity and a 5.875 percent interest rate -- narrowed to 153 basis points from 161 basis points at pricing, relative to top-rated 30-year municipal bonds. Demand at yesterday's sale allowed underwriters Bear Stearns Cos. and Citigroup Inc. to lower yields on the bonds by 3 basis points from an initial 6.10 percent.

Ohio's deal was the largest to raise a lump sum by selling off future payments from the 1998 settlement between states and cigarette makers and the biggest tax-exempt bond offering since 2004. The appetite shown for the bonds, while bolstering the municipal market, also helped stoke gains in tobacco debt sold by other state and local governments.

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Ohio Cuts Yields on Record $5.5 Billion Muni Tobacco Bond Deal 

Ohio raised $5.5 billion today in the state's biggest tax-exempt bond offering, selling debt backed by future settlement payments from cigarette makers to fund current capital needs for education.

The state-run Buckeye Tobacco Settlement Financing Authority sold senior-lien and subordinate-lien bonds, including fixed-rate securities with an average 19-year life at a 6.07 percent yield. Bear Stearns Cos. and Citigroup Inc. managed the largest long- term municipal-bond sale in three years.

Ohio got enough demand for the senior bonds to raise prices and cut yields by 1 to 5 basis points from initial pricing earlier today.

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Ohio Tobacco, Louisiana, San Jose: U.S. Municipal Bond Alert 

OHIO, the seventh most-populous U.S. state, plans to sell the largest-ever offering of bonds backed by annual payments from the 1998 tobacco settlement beginning today. The state's Buckeye Tobacco Settlement Financing Authority is to issue $5.5 billion of tax-exempt bonds with maturities ranging from 2009 to 2057, including fixed-rate, floating-rate and zero-coupon securities. Bear Stearns Cos. and Citigroup Inc. are leading a group of 35 investment banks marketing the bonds to investors. Individuals can place orders today and Oct. 22, with final pricing for funds, banks, insurers and other institutional investors set for Oct. 23. The bonds, backed by 100 percent of the payments owed to Ohio under the master settlement agreement with cigarette makers, will fund education projects around the state. (Updated Oct. 19)

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Ohio Pushes Back $5.5 Billion Tobacco Bond Sale by Four Days 

Ohio moved back its planned $5.53 billion sale of bonds backed by payments from the 1998 settlement between U.S. states and cigarette makers by four days, citing delays in preparing bond documents.

The state's Buckeye Tobacco Settlement Financing Authority plans to begin taking orders from individual investors on Oct. 19, instead of Oct. 15, with final pricing for funds, banks, insurers and other institutions on Oct. 23. Bear Stearns Cos. and Citigroup Inc. will manage what will be the largest sale of tobacco-settlement bonds.

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