Louisiana is refinancing of $ 638 million in bonds backed by payments tobacco companies such as debt beats broad $ 3.7 trillion Muni market this year.
This week’s sale by the Tobacco Funding Corporation, which is the return of the securities sold in 2001, based on revenues from 1998 settlement between tobacco companies and USA state to cover medical costs associated with smoking.
Louisiana officials approved the refinancing last month to take advantage of historically low interest rates, according to a statement from Kristy Nichols, the administrative department of the commissioner. During June, the municipal bond yields rose to near two-year high as stocks rallied and the Federal Reserve System is built end to its quantitative easing program in 2014.
“We continue to monitor market conditions in terms of timing and the exact amount of savings will be done in such a way that it is in the interests of the state,” Michael DiResto, spokesman Nichols, said by e-mail. “We look forward to strong investor interest in the sale of the bonds, despite the difficult market conditions in these last few weeks.”
Fitch Ratings provides debt BBB + class, it provides the best of tobacco bonds and seven degrees below the upper level of the securities. Fitch expects that even if tobacco companies bankruptcy, payment States will continue “because the stop they would be at risk of litigation.”
Ratings Rationale
Standard & Poor’s rates securities maturing in 2016 through 2023, or five steps below the top grade, while those in 2024 due until 2033 - at one level lower, and the maturity of 2035 BBB +. The ratings reflect the likelihood of timely payment, the credit quality of the tobacco company, the structure of the transaction and the availability of approximately $ 57.3 million in the reserve account of liquidity, S & P said.
The 1998, which corresponds to 46 states struck with Phillip Morris USA (PM), Reynolds American Inc. (RAI) and Lorillard Inc. (LO), required the companies to pay more than $ 200 billion to solve their obligations in the trial of the medical costs associated with smoking. About $ 101 billion of municipal debt is based on payments that are based on cigarette shipments.
Tobacco Muni produced 0.48% year to date total return through June 20, compared with a loss of 2.13% for a wide Muni market, according to Barclays Capital indexes.
A Louisiana tobacco bond maturing in May 2039 traded June 21 at an average yield of 5.88%, with an average spread of 2.16% points over the benchmark munis of the same maturity, according to data compiled by Bloomberg. On January 2, Tobacco Bond average yield of 3.73%, the risk premium of 1.03% points.
