Tobacco.org

• Budget Woes Expose Rifts Over Tobacco Money  

At least 17 states, including California and New York, have already sold bonds based on future tobacco settlement payouts and spent some or all of the money before they have it, according to the National Conference of State Legislatures. Moreover, cigarette taxes are also less lucrative than they were a decade ago because cigarette sales in the United States have dropped by more than 20 percent.

Nonetheless, two weeks into the year, conservative, tobacco-friendly states like Kentucky, Georgia and Mississippi are considering sizable tax increases on cigarettes, while some with liberal Democratic governors -- including Michigan, Ohio and New Mexico -- are looking at ways to redirect tobacco settlement money to close budget gaps or for economic stimulus packages.

Florida lawmakers have considered both options.

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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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• 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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• Altria's Exit Stuns City, County and State: Joe Mysak (Correct) 

``Philip Morris Quits North Carolina,'' the Charlotte Observer reported on Page 1, summing things up philosophically, and without a trace of hysteria. . . .

When tobacco bonds were first sold in 1999, the report said that cigarette smoking peaked in 1981, when Americans consumed 640 billion of the things. It also said that consumption would fall to 247 billion by 2032. This new edition of the report now puts the 2032 number at 234 billion. By 2052, Americans will be smoking only 163 billion cigarettes.

That's good news and bad news, of course. It's good news for everyone who thinks people should stop engaging in self- destructive behavior, bad news for the states and municipalities that depend upon tobacco companies for jobs and tax revenue and those annual settlement payments.

Altria hopes to shut down the Concord factory by the end of 2010, giving municipal officials -- and bondholders -- plenty of time to think about how they are going to deal with this ``event.''

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• Virginia Deal the Latest Sign of Tobacco's Return 

In early 2003, litigation against the nation's big tobacco companies and the fear that Philip Morris USA could be headed for bankruptcy put tobacco bond deals on ice for a while.

Time, it seems, has calmed some of those fears, and Virginia will sell its $1.1 billion of tobacco bonds tomorrow into a market much friendlier toward tobacco than it was when the state first tried in 2003.

Though marketing a tobacco deal is still a long and involved process, the strategy of selling tobacco bonds now requires fewer dealings with investors worried about the bonds' credit, bankers and advisers said in interviews this week. The most important thing to do when planning a tobacco sale is to steer clear of the market when it is flush with tobacco paper, they said.

Two of the largest deals sold this year have been tobacco bonds, with New Jersey's $3.6 billion sale going Jan. 23, and California's $4.4 billion pricing March 8. . . .

As Virginia prepares to sell $1.1 billion of debt, the state hopes to tap into the demand that met the $8 billion of tobacco bonds already sold this year, according to Steven Kantor, managing director for First Southwest Co. and Virginia's financial adviser on the tobacco deal. He also advised on the New Jersey sale.

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• Blanco's 'transparency' was absent in tobacco board's vote 

Gov. Kathleen Blanco has long said she's keen on "transparency in government," the idea that the public should be informed when her office makes decisions about the public's money.

That idea went AWOL last week when the Blanco administration shoved forward a plan to sell off what's left of Louisiana's 1998 settlement with the cigarette industry, aiming to get a lump of cash instead of collecting annual installments from tobacco firms. The plan would involve roughly $1 billion in state revenue.

The public had no way of knowing, but a state board controlled by Blanco voted to approve selling that settlement soon _ a proposal that's full of variables and has plenty of skeptics, including the state treasurer and quite a few legislators.

The board's meeting was not transparent _ it was invisible. Neither the public nor the press was told it would take place. . . .

Normally, the Blanco-controlled Tobacco Settlement Financing Corp. Board publicizes its meetings with plenty of notice.

Not last week, even though the meeting featured the most important decision the board can make. If that tobacco money is sold, the board's reason for existence will steadily fade away. . . .

The semi-secrecy gave ammunition to Blanco's critics, who didn't really need any: they were already primed to attack the idea of selling the tobacco money. Noting that the state already has $1.9 billion that hasn't been spent yet, Rep. Jim Tucker voiced his opposition to the plan and called the governor a sneak.

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• Panel backs sale of tobacco deal 

The Blanco administration wants to sell the state's remaining tobacco settlement to speed up the fight against coastal erosion and help pay ordinary state expenses.

Tobacco Settlement Financing Corp. -- made up largely of state officials -- also decided Monday to refinance the tobacco-settlement revenue it sold in 2001.

The panel voted 6-1 to hire Wall Street investment giant Bear Stearns as senior manager to handle the complex deal.

Only State Treasurer John Kennedy voted against the sale, arguing that the issue was hastily added to the panel's agenda and that "we're not sure we're getting the best price." . . .

Goodson said about $350 million would go to coastal erosion efforts, as ordered by the state constitution. The state needs billions to restore its receding coastline.

The rest would go into another constitutional fund that invests the tobacco windfall and spends only the interest on education and health programs.

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• Governor Doyle Hopes To Fix Tobacco Money Mistake 

He opposed it when it happened, used it as a plank of his successful 2002 gubernatorial campaign, and now hopes to fix it.

Governor Jim Doyle just can't get over what Wisconsin did with its share of a multistate tobacco settlement.

What Wisconsin lawmakers did, with the approval of then-Governor Scott McCallum, was sell the state's tobacco settlement to investors to plug a budget hole.

Doyle was attorney general at the time and wanted it instead to go toward anti-smoking efforts.

Doyle now wants to turn back the clock and try again. He intends to refinance the bonds that were purchased with the settlement money. He says that will net the state $600 million.

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• Fitch Affirms Over $14.6B In U.S. Tobacco Settlement ABS 

Fitch Ratings has affirmed over $14.6 billion in outstanding tobacco settlement bonds. Fitch's rating of the tobacco settlement asset-backed bonds relies on the rating of the U.S. domestic tobacco industry and the payment of bond principal by its stated legal final maturity under Fitch's cash flow stress scenarios. A detailed ratings list follows the end of the release.

Fitch currently rates the U.S. domestic tobacco industry 'BBB-' with a Stable Outlook. Fitch revised the sector's Outlook to Stable from Negative on May, 16, 2006 on improvements in both the litigation and operating environment, in addition to the tobacco companies' improved financial condition.

The tobacco industry rating is primarily driven by the credit profiles of the three largest public tobacco manufacturers, Altria Group, Inc. (Issuer Default Rating of 'BBB+' by Fitch), Reynolds American Inc. (IDR rated 'BB'), and Loews Corporation (IDR rated 'A'), which comprise approximately 89.2% of U.S. domestic market share with Altria Group, Inc. the market leader, comprising approximately 50%.

Tobacco settlement bonds are tied to Fitch's industry rating of the tobacco industry.

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• MYSAK: Tobacco Bonds, Like Smokes, Deserve Warning Label: Joe Mysak 

the tobacco bond market is what happens when too many institutional investors chase too few ``high- yield'' (and I use the term very loosely) bond issues.

If you want to sleep at night, which is why you buy municipal bonds in the first place, you ought to steer clear of tobacco bonds.

Sure, there are guys who made money in these things. Those investors who took a chance on the very first tobacco bonds, who rode them down when prices sank into the 70-cents on the dollar range, also rode high when issuers later advance-refunded those bonds. When issuers advance-refund bonds, they replace whatever is paying debt service -- in this case, the annual payment from the tobacco companies -- with a pot of Treasury securities set up to retire the bonds.

That may happen again in the future. But you don't want to be one of the guys who doesn't have a chair when the music stops.

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• State may take lump sum from tobacco suit 

Plans to cash in the state’s tobacco settlement payments for a lump sum were shelved two years ago, but the Manchin administration is reconsidering that option in light of plunging payments from tobacco manufacturers, the director of the state Budget Office said Tuesday.

As part of the 2000 settlement of a 46-state lawsuit against the five largest tobacco companies, West Virginia stands to receive as much as $1.9 billion in settlement payments through 2025.

However, because of overall declines in sales, a loss in market share to off-brand manufacturers, and withholding of some payments by some manufacturers, the annual payments to the state have dropped sharply. - advertisement -

For 2005-06, the payments were $51.86 million, or roughly 83 percent of what was projected — the lowest in seven years of settlement payments, state Budget Director Roger Smith told the Joint Committee on Finance Tuesday.

That produced a shortfall of $10.22 million over the projected payments for the year, the largest single-year shortfall in seven years of payments, and nearly double the $5.59 million shortfall for 2004-05. . . .

Also Tuesday, Mark Muchow, state director of fiscal policy, said state cigarette tax collections increased 7 percent, to $107.12 million, in 2005-06, after several years of flat collections.

It appears the difference, he said, was that cigarette taxes in Ohio increased from 55 cents to $1.25 a pack last year.

“I think that was probably enough of an increase that people who are close enough in Ohio are driving across the border,” Muchow said.

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• Tobacco Bonds Hold Steady on Win ($$) 

Tobacco bonds issued by states, counties and cities held steady as the tobacco industry chalked up another win with the long-awaited verdict in the Engle class-action lawsuit in Florida.

Tobacco bonds are trading at their tightest levels in a long time, with investors having flocked to these bonds as the legal tide appeared to be turning in favor of the tobacco industry. . . .

The verdict keeps money in the industry's pocket that will help pay for about $25 billion in tobacco bonds, so called because they are backed by the flow of future payments from tobacco companies under terms of a 1998 legal settlement with 46 states.

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• Arbitrator ruling may prompt tobacco payment cuts 

Tobacco companies could move a step closer to reducing their settlement payments to 46 states by billions of dollars when an arbitrator late on Monday determines what caused them to lose market share.

The next annual payment from Big Tobacco in the landmark 1998 settlement -- about $6.5 billion -- is due April 15. But several cigarette makers are seeking to reduce that payment by about $1.2 billion due to declining sales.

Much is at stake in the decision, because it could set a precedent for payment reduction demands in subsequent years by the tobacco companies, which through 2005 saw a steady decline in cigarette sales to their lowest level since 1951.

The decision, which may not be announced until Tuesday, could have negative implications for $31.5 billion in bonds backed by tobacco payments sold by states, cities and counties. . . .

The Brattle Group, the arbitrator hired by the state attorneys general and the tobacco companies, is expected to decide whether to affirm an earlier determination that the costs associated with the "Master Settlement Agreement" were a "significant factor" that caused a 2 percent market share loss in 2003 for tobacco firms that participated in it.

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• Treasurer says state should cash in on tobacco tax 

Mark Hillman called on the Legislature Tuesday to cash in Colorado's share of the $206 billion tobacco settlement that states and tobacco companies agreed to in 1998.

A lump payment now means the state gives up annual tobacco payments of roughly $100 million over several decades and settles for a one-time payment of approximately $1.3 billion.

Hillman, appointed interim treasurer last June when Mike Coffman headed off to Iraq, cautioned against holding off on collecting in full the tobacco proceeds promised the state.

"If we don't securitize now, while the market is near its peak, our fiscal fate will remain linked to that of Big Tobacco," Hillman wrote. . . .

"Colorado government should no longer send the mixed message to citizens that 'we want you to stop smoking' because it's terrible for your health but 'we need you to keep smoking' to pay for government programs," Hillman wrote.

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