>Cigarette Sales Drop Points to $12 Billion Tobacco Bond Defaults
By Michael Quint – Aug 6, 2010
https://www.bloomberg.com/news/2010-08-06/cigarette-sales-decline-points-to-tobacco-bond-defaults-sims-report-says.html
Declining cigarette sales and disputes over how much tobacco companies owe to U.S. states may cause more than $12 billion of defaults on related bonds issued by California, New York City, New Jersey, Ohio and Virginia.
Defaults on securities that are backed only by the tobacco- company payments and were issued in 2006 and 2007 “could start occurring as early as 2030,” according a report by Richard Larkin, a senior vice-president at Herbert J. Sims & Co.
Payments in April by tobacco companies, owed under a 1997 settlement of state lawsuits claiming damages for health-care costs, fell 16 percent, according to the National Association of Attorneys General. Much of that decline stems from a 9 percent slide in cigarette sales last year, more than twice the 4 percent drop assumed in some bond sales, said Larkin, who is based in Iselin, New Jersey.
Tobacco bond defaults of $12 billion would be almost four times the $3 billion of bonds that Jefferson County, Alabama’s sewer authority defaulted on. Municipal issuers failed to pay on about $6.9 billion of bonds last year, according to the Distressed Debt Securities newsletter.
State and federal tax increases have helped push cigarette sales lower than were projected when the securities were issued. New York State raised its cigarette tax by $1.60 a pack last month, lifting the average price to about $10.80 in New York City and $8.92 in other parts of the state, according to Erik Kriss, a state Budget Division spokesman.
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https://www.bloomberg.com/news/2010-08-06/cigarette-sales-decline-points-to-tobacco-bond-defaults-sims-report-says.html
