Big Tobacco to pay the state $ 6.5 billion

The three largest U.S. companies, tobacco, said Monday they have paid a total of $ 6.5 billion this year in the states of the United States, unchanged since 2011, the 1998 national agreement, which obliges companies to help cover the health bills of patients smoking .

Altria (in MO.N) Philip Morris paid $ 3.5 billion, but the Marlboro brand of cigarettes contests the $ 206 million of this amount and put the money on deposit. The national settlement, which involved the majority of states, is intended to equalize between the two companies which have signed it, and those who did not. Thus, payments to the signing of the companies reduced the amount of market share they lost to firms that did not participate in the settlement.

However, the participating tobacco companies for years have argued reductions were not large enough, and large companies have the amount they are challenged in the transaction. Reynolds American Inc (RAI.N), which makes, had paid $ 1.9 billion and put $ 469 million it is dispute in the transaction.

Lorillard (LO.N), known for its Newport brand, said it paid $ 1.1 billion to $ 98 million of that amount to put into storage. States, counties and the city sold about $ 40 billion of bonds secured more than $ 200 billion of payments that cigarette manufacturers agreed to with the passage of time.

The National Association of Attorneys General last week estimated that the cigarette manufacturers would pay claims of $ 6.1 billion, compared with $ 6.03 billion last year. This figure does not include the disputed amount, and refers to the payment of all tobacco companies.

Last year, the top cigarette manufacturers, Philip Morris, Reynolds American and Lorillard, paid $ versus $ pure 5649000000 5727000000 in 2012. Nevertheless, the prospects for U.S. municipal bonds are only slightly better than tobacco, because sales of cigarettes decreased less steeply than expected, and the tobacco companies should pay a little more of in the national agreement.

“We’re not out of the woods yet,” said Richard Larkin, Iselin, New Jersey director of credit analysis to HJ Sims, noting that the risk that cigarette sales could fall more in the next year. In addition, tobacco companies can win the right to preserve some of the billions of dollars they say they do not have states. The National Association of Attorneys General, whose members negotiated the 1998 settlement of a cigarette, said that the number of cigarettes sold fell only 2.9 percent compared with the expected decline of 3.5 percent.

In 2010, cigarette sales fell much steeper: 6.37 percent, according to Standard & Poor’s Ratings Services. In 2009 sales fell 9.3 percent, he said. California, Ohio, Virginia brand of cigarettes can get In contrast to the general sector respect of tobacco, however, the debt is sold in three states should benefit from the latest data.

This is because, Ohio, California and Virginia all have been identified in the reserves last year to pay off the bonds and higher payments this year may help to minimize the extent to which these three states will have to tap reserves, according to analysts.

Ohio sold $ 5.2 billion of tobacco bonds in the past year to bring about $ 8 million from the reserves, he said. This year, Ohio could avoid pushing reserve. Virginia has sold more than $ 1 billion in tobacco bonds, and this year, Larkin said that the conclusion is likely to be less than $ 1 million.

California has sold two bond issues of tobacco. Over $ 4.4 billion question, he had to leave about $ 7.7 million of stock last year. This year in California, probably still have to use reserve funds to make payments on these bonds - but only about $ 1.8 million, according to Larkin.

California has also sold another $ 3.1 billion of tobacco bonds, but this debt with the support of public spending so that its withdrawal from reserves of $ 5 million last year, was not so alarming, said Larkin. But Blake Anderson, managing director of the San Francisco group of high-Mesirow Financial, in warning that any market benefits are not sure what you need for tobacco bonds of these three states.

“Somehow, the market comes to realize that this is another factor entirely.” This is because the market of tobacco bonds and illiquid debt is so complex that significant research is needed to select the winners and losers, analysts said.

So far this year, tobacco bonds have largely been met as well as other high-yield municipal bonds, will benefit some growth in investor risk disappointment with the low yields offer a safe investment, analysts say. But these spotted, because prices vary depending on the size of the block, and the bid / ask spreads are usually wide. This makes the identification of trends.

The specific transaction, however, show high yields, which can be obtained with such a duty - and some of the recent tight spreads on AAA-scale data compiled by Municipal Market, part of Thomson Reuters.

For example, $ 1 million block of Golden State Tobacco Securitization California debt traded at a yield of 7.13 percent on April 16, according to EMMA, the database is created municipal securities rulemaking board. The issue, which matures in 2033, has a 5 percent coupon. December 15, 2011 block of 10 million dollars has changed to 8.06 per cent yield.

A similar pattern was observed with a certain debt of Virginia. $ 1 million blocks of tobacco bonds with a maturity of Virginia in 2047 and to 5 percent coupon traded on April 13 at 7.78 percent yield on EMMA. In contrast, more than $ 23 million block trading at 8.635 per cent return on December 7, 2011.

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