California Begins Offering Tobacco Bonds With State-Guaranteed Return
After a delay of several months, California this week began offering tobacco bonds with a return guaranteed by payments from the national tobacco settlement, the San Francisco Chronicle (Pender, San Francisco Chronicle, 9/23). In April, California delayed the bond sale because of concerns over an Illinois court decision involving Philip Morris USA. An Illinois judge in March month ruled in a class-action case that Philip Morris misled consumers about the health risks of "light" cigarettes and ordered the company to pay $10.1 billion in damages. Philip Morris officials plan to appeal the case, but state law requires the company to post a $12 billion bond to file an appeal. The tobacco company warned that it might not be able to pay out the state's tobacco settlement funds because of the bond order (California Healthline, 4/4). The case is still pending; however, in response to uncertainty about the tobacco industry, the state decided to guarantee the bonds with tax revenue if needed, Bloomberg/Los Angeles Times reports (Bloomberg/Los Angeles Times, 9/23). The state will use the $2.3 billion expected from sale of the bonds, officially called "Golden State Tobacco Securitization Corp. Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2003B," to help offset the current fiscal year's budget shortfall. About 43% of California's share of the tobacco settlement money will repay the bonds (San Francisco Chronicle, 9/23). A return offer of 5.75% on the bonds offered Monday may have to be increased to at least 6% to attract buyers, some analysts said (Bloomberg/Los Angeles Times, 9/23).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.