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Stop mortgaging tobacco cash  

Idea 32: Stop stealing from future taxpayers by mortgaging the tobacco lawsuit settlement money. . . .'

Benefits: Those three trips to the tobacco lawsuit loan window are responsible for about $80 million in annual debt service payments. That money is not available for government services, including revenue sharing for communities, college scholarships and certain Medicaid programs. Stopping this practice would free up money for higher budget priorities.

How: The best solution might be a ballot initiative to remove any ambiguity in the state constitution's balanced budget provisions. Publicizing this practice might shame lawmakers into stopping it.

Obstacles: Lawmakers prefer to spend but fear asking current voters to pay more, thinking it is better to stiff future taxpayers.

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Some plain talk on cash crisis  

Paterson, a former Senate Democratic leader, and Sampson clashed in public for the second time in just over a month. The Senate leader suggested that refinancing tobacco bonds could generate $500 million (that move, however, would add to long-term costs). Tobacco bonds are payments the state makes in return for up-front cash it received from federal tobacco lawsuit settlements.

Paterson called the idea a "non-starter" and, after the meeting, said the notion represented "phony revenues."

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Paterson Shoots Down Senate Plan 

In a public meeting with legislative leaders, Governor Paterson shot down a plan floated by Senate democrats to refinance tobacco settlement bonds. New York State is facing a $3 billion deficit, and needs to come up with revenue quickly. Senators predict their tobacco proposal could raise $500 million. But Paterson says the money isn't guaranteed and couldn't come fast enough to pay bills due this December.

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New York Faces December Cash Squeeze, Governor Says (Update1)  

Tobacco Bonds

The tobacco bonds are backed by remuneration from tobacco companies to settle lawsuits and appropriations by the Legislature if those payments aren’t sufficient, according to the official statement for bonds sold in 2003. The sale of the bonds, to close a deficit in 2003, led to a reduction in the state’s bond rating by Standard & Poor’s. . . .

New York’s Local Government Assistance Corp., backed by sales tax receipts, or the Tobacco Settlement Financing Corp., backed by tobacco company payments to settle lawsuits, have about $7.44 billion of debt outstanding. Bondholders are scheduled to receive payments of $891 million in the year ended March 31, 2010, according to the state’s annual information statement.

The Senate Democrats’ proposal for the tobacco bonds would have the state sell new bonds with a thinner cushion of excess payments from tobacco companies than exists for the bonds sold in 2003, said Travis Proulx, a spokesman for Sampson. That would allow the state to sell $500 million of additional bonds, with the exact amount depending on how much of projected payments by tobacco companies the state wants to pledge to bondholders.

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Nations can save lives and cut losses of billions of US dollars by deciding this week to work on a new international treaty to combat global trade in illicit tobacco products 

This week at a global health conference, health advocates are urging governments to start negotiations on a new international treaty to combat illicit trade in tobacco products.

Representatives of 147 countries are meeting at a global health conference in Bangkok June 30-July 6 2007 to implement the international tobacco control treaty, the Framework Convention on Tobacco Control of the World Health Organization (FCTC). One of the main agenda items of the conference will be the discussion of an expert report on combating the illicit tobacco trade.

“Nations serious about protecting the health and well-being of their people should take the illicit tobacco trade very seriously. Smuggled and counterfeit cigarettes are sold at lower prices than legal products, contributing to higher consumption and greater rates of smoking-related illness and death,” said Luk Joossens, Senior Policy Advisor of the Framework Convention Alliance (FCA). “The illicit tobacco trade also deprives governments of billions of dollars of tax revenue reducing funding available for public health and other programs.”

The FCA – an international alliance of hundreds of tobacco control organisations - has estimated that, in 2006, the illicit cigarette trade accounted for 10.7% of total global trade or approximately 600 billion cigarettes sold worldwide. The yearly loss of revenue to governments - more than US$ 40 billion - represents a sum greater than the GDP of two-thirds of the World’s countries.

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Fitch Takes Actions on Children's Trust Fund Tobacco Settlement Bonds Ser 2002, 2005 & 2008 

Fitch Ratings affirms 11 and downgrades two classes from Children's Trust Fund Tobacco Settlement (Puerto Rico) asset-backed bonds series 2002, 2005 and 2008, as follows:

Tobacco Settlement asset-backed bonds current interest serial bonds

--$11,315,000 due May 15, 2010 affirmed at 'BBB+'; Outlook Stable;

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Fitch Takes Various Actions on Michigan Tobacco Settlement Financing Authority, Series 2008 

Fitch Ratings affirms two and downgrades one class from Michigan Tobacco Settlement Financing Authority, tobacco settlement asset-backed bonds, series 2008, as follows:

--$114,860,000 series 2008A turbo current interest bonds due June 1, 2042 affirmed at 'BBB+'; Outlook Stable;

--$29,874,650 series 2008B taxable capital appreciation turbo term bonds due June 1, 2046 affirmed at 'BBB'; Outlook Negative;

--$57,673,814 series 2008C capital appreciation turbo term bonds due June 1, 2058 downgraded to 'BB' from 'BBB-'; Outlook Negative.

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Fitch Removes Golden State Tobacco Securitization Corp's Bonds from Rating Watch Negative 

Golden State entered into a forward purchase agreement with Lehman Brothers Special Financing Inc. (LBSFI) to invest moneys held in the above-referenced series 2007 bond's reserve fund. LBSFI, which filed for bankruptcy on Oct. 3, 2008, was unable to fulfill its obligations under the agreement. Golden State reinvested the funds held in the reserve fund with eligible investments pursuant to the indenture, and Fitch subsequently removed the series 2007 bonds from Rating Watch Negative.

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Altria Bonds Give Investors ‘Instant Gratification’ (Update2)  

In credit markets Federal Reserve Chairman Ben S. Bernanke says are broken, the best investment in the first quarter was newly issued corporate bonds.

Buyers earned an average of 2.4 percent, or about $8.5 billion, as the debt outperformed Treasuries, stocks and other corporate securities. Non-financial companies sold a record $332 billion of investment-grade bonds in dollars, pounds and euros in the quarter, according to data compiled by Bloomberg.

To ensure they could raise cash amid the worst financial and economic crisis since the Great Depression, borrowers offered yields that were an average 50 basis points higher than existing debt, according to Bank of America Corp. This so-called new issue concession helped bonds of Altria Group Inc., the largest U.S. tobacco company, rise 7 percent since their sale on Feb. 3.

New corporate debt is “definitely one of the safest plays out there,” said Arthur Tetyevsky, chief fixed-income strategist at CF Global Trading UK Ltd. in New York. “You get instant gratification.”

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Fitch Affirms 1 & Upgrades 6 Classes of Legal Settlement Bonds (Tobacco Related) 

Fitch Ratings has completed a review of its portfolio of legal settlement bonds (tobacco related) and taken rating actions on the outstanding classes as follows:

Legal Settlement Trust 2001-A

--$50,500,000 bonds affirmed at 'BBB-'.

Legal Settlement Trust 2002-A

--$53,750,000 bonds upgraded to 'BBB' from 'BBB-'.

Litigation Settlement Monetized Fee Trust I, 2001-1

--$267,100,000 class A-1 certificates upgraded to 'BBB' from 'BBB-';

--$41,000,000 class A-2 certificates upgraded to 'BBB' from 'BBB-'.

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Wisconsin’s Tobacco Debt Substitute Leads Municipal Bond Sales 

Wisconsin completed its $1.54 billion municipal bond sale, saving millions of dollars in interest the day after the Federal Reserve’s announcement that it would expand asset purchases to include U.S. government debt.

The Federal Reserve announced yesterday its plan to buy up to $300 billion in U.S. debt. Treasuries yesterday headed for a weekly gain as investors bet yields will remain low. Wisconsin benefited by cutting yields in nearly all the maturities after taking institutional orders yesterday.

“We got help from the Fed’s action,” Frank Hoadley, Wisconsin’s director of capital finance, said in an interview. “It forced a significant re-pricing up and down the scale.”

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Philip Morris Pushes ’09 Bond Sales to EU100 Billion (Update2)  

Bond sales by Philip Morris International Inc. and Deutsche Lufthansa AG today will push European issuance for the year above 100 billion euros ($130 billion), the quickest it has ever reached that level.

Borrowers are taking advantage of investor demand for corporate bonds, on which spreads relative to government debt have soared to a near-record in the credit crisis, according to Merrill Lynch & Co. data. Investors are providing a source of funding for high-grade companies by seeking better yields with lower risk, as they retreat from tumbling stock markets.

“The race is over for the 100 billion-euro mark,” said Suki Mann, senior credit strategist at Societe Generale SA in London. “The benchmark deals today leave us needing to build an Arc to contend with the flood of issuance.”

Philip Morris, the world’s largest publicly traded tobacco company, led the sales, with a planned 2 billion-euro issue, while Lufthansa is raising 850 million euros and Dusseldorf- based E.ON AG, Germany’s biggest utility, is selling 750 million euros of bonds, bankers involved in the transactions said. Today’s issuance is the most since Feb. 25 and exceeds last week’s 3.8 billion euros, according to data compiled by Bloomberg.

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Wisconsin Plans Largest Tax-Exempt Offering in Almost a Year  

Wisconsin plans to raise $1.52 billion to help close its budget deficit by refinancing bonds backed by tobacco settlement money, in what would be the largest U.S. offering of tax-exempt, long-term debt in almost a year.

The deal also will be the biggest of almost $8 billion in state and local government bond sales planned for this week, a schedule that may exceed last week’s $7.5 billion. North Carolina’s Wake County, New York’s Dormitory Authority and the Los Angeles Community College District also plan to borrow.

Wisconsin’s offering of bonds and notes will be the first time since the 1998 master agreement with cigarette makers that tobacco-settlement securities will be refinanced with debt backed solely by state appropriations. The sale also represents a prelude to California’s $4 billion bond deal next week.

“Wisconsin’s probably going to be the test to see what the market can absorb,”

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Wisconsin Plans $1.5 Billion Offering to Refinance Tobacco Debt  

Wisconsin plans to raise as much as $1.5 billion by selling appropriation-backed debt this month to buy back the rights to the state’s share of annual settlement money from cigarette makers and provide budget relief.

The sale of bonds and notes, set for the week of March 23, will allow Wisconsin to retire debt issued seven years ago by Badger Tobacco Asset Securitization Corp., said Frank Hoadley, Wisconsin’s capital finance director. The state sold its rights to the nonprofit financing arm to reap a lump sum from the 1998 national tobacco settlement.

The state expects to obtain $309 million in savings from the latest debt sale to help balance its two-year budget ending June 30, Fitch Ratings said.

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Editorial: Tobacco bonds aren't a lasting fix 

Why "tobacco"? The governor's original idea was to issue bonds backed by the annual payments the state receives from tobacco companies as a result of a 1998 lawsuit settlement. Seventeen other states have done as much, and have paid high interest rates to do it. But the option seemed to close when credit markets seized up last fall. State bonds backed by tobacco receipts became virtually impossible to sell. . . .

If unaddressed, the structural deficit will still be wreaking havoc on public services when the recession ends. Using tobacco appropriation bonds to cover expenses in 2010-11 won't fix the structural problem. In fact, it will almost guarantee that there will be more state money trouble in 2012 and beyond.

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