What is a tobacco settlement bond?
Unlike other bonds that are backed by revenues or taxes, a securitized bond is backed by a stream of future payments to the public entity. A tobacco securitization bond is backed by payments pursuant to a tobacco settlement, and is based on tobacco sales from the participating manufacturers.
What was the purpose of the Master Settlement Agreement?
The Master Settlement Agreement (MSA) imposes major restrictions on tobacco company marketing practices and prohibits advertising aimed at youth. The MSA restricts the participating tobacco companies in the following ways: Prohibits direct or indirect targeting of youth in advertising, marketing and promotions.
What was the purpose of the tobacco lawsuit case that resulted in the tobacco Master settlement?
to create and fund the National Public Education Foundation, dedicated to reducing youth smoking and preventing diseases associated with smoking. to make annual payments to the settling states in perpetuity.
What is MSA reporting for tobacco?
MSA Multicat Mandatory Data Multicat reports are weekly reports filed electronically by tobacco, candy, drinks, and grocery distributors to report sales and inventory floor counts to brand manufacturers as part of participating in their trade programs.
Where did the tobacco settlement money go?
This year (fiscal year 2020), the states will collect $27.2 billion from the 1998 tobacco settlement and tobacco taxes. But they will spend less than 3% – just $739.7 million – on programs to prevent kids from using tobacco and help smokers quit - less than a quarter (22.4%) of the total funding recommended by the CDC.
What effect did the settlement have on tobacco sold in the US?
Revenues from domestic sales of tobacco products increased after the MSA was reached, and profits from this source increased as well. Although overall domestic consumption of cigarettes decreased,22 the cigarette price increases more than offset such declines.
Can I sue tobacco companies for COPD?
Yes, you can still sue tobacco companies in certain cases. You may be able to bring an action as an individual or, in some cases, as a representative of a class in a class action.
What was the result of the 1998 settlement between the tobacco industry and US states?
In the largest civil litigation settlement in U.S. history, the states and territories scored a victory that resulted in the tobacco companies paying the states and territories billions of dollars in yearly installments.
When was the tobacco settlement?
November 1998The tobacco Master Settlement Agreement (MSA) is an accord reached in November 1998 between the state Attorneys General of 46 states, five U.S. territories, the District of Columbia and the four largest cigarette manufacturers in the United States.
When was the big tobacco lawsuit?
In 2006, the American Cancer Society and other plaintiffs won a major court case against Big Tobacco. Judge Gladys Kessler found tobacco companies guilty of lying to the American public about the deadly effects of cigarettes and secondhand smoke.
When did cigarette companies stop advertising on TV?
On April 1, 1970, President Richard Nixon signs legislation officially banning cigarette ads on television and radio. Nixon, who was an avid pipe smoker, indulging in as many as eight bowls a day, supported the legislation at the increasing insistence of public health advocates.
What should a settlement agreement include?
What should the settlement agreement contain? The standard terms of the settlement agreement are the following: The outstanding balance of the salary, bonuses, commission and holiday pay of the employee; A termination payment that will be paid by the employer to the employee for agreeing to terminate the contract.
What should I ask for in a settlement agreement?
8 Questions to Ask if You've Been Offered a Settlement AgreementIs the price right? ... How much will I pay for legal advice? ... Have I been offered a reference? ... How much time would legal action take? ... Are there any restrictive covenants in your agreement? ... Do I have to pay tax on my agreement?More items...
What happens if a settlement agreement is not paid?
Technically, any late payment is a breach of contract. However, the consequences can vary. In most situations, late payment will not render void the entire agreement or waiver of claims. The employee's normal recourse would be a breach of contract claim in respect of the payment obligation.
What is a reasonable settlement agreement?
By Ben Power 8 April 2022. A settlement agreement is a contract between two parties, usually (but not always) an employer and an employee, which settles the employee's claims against their employer.
What is the likelihood of payment on a tobacco settlement bond?
So long as the payment stream is maintained under the MSA to the states, the likelihood of payment on tobacco settlement bonds relies solely on those payments . The structure of each tobacco settlement bond financing was based on “worst case” scenarios assuming the payment stream is less than expected, and was designed to still pay debt service in a timely fashion. Through “over collateralization,” tobacco settlement bond issuers have pledged funding from their MSA payments sufficiently in excess of the amount necessary to meet debt service requirements so as to withstand a variety of dire scenarios, including the bankruptcy of a major tobacco company.
How are tobacco bonds rated?
Tobacco bonds have generally been rated based on each agency’s opinion of the tobacco industry’s credit quality overall, as well as specific collateral issues present in each financing. Since Philip Morris represents approximately half of domestic tobacco sales, its fortunes serve, in many ways, as a proxy for the industry overall. As a result, a change in PM’s ratings may cause unwarranted rating adjustments for tobacco securitization bonds as well.
Why are Philip Morris ratings based on the tobacco industry?
Ratings on Philip Morris are a proxy for ratings on the tobacco industry because of Philip Morris’ leading market position. Tobacco settlement bonds are not a direct obligation of tobacco companies, but are payable from the MSA settlement stream payable to each state. There is a strong disincentive for tobacco companies to withdraw from the MSA during a bankruptcy, since the flood of new lawsuits would serve only to dramatically decrease those companies’ financial flexibility even further. Finally, bond ratings on tobacco settlement bonds are based on the rating of the tobacco companies, not on the strength of the MSA revenue stream, as we think they should be. We know of no other bond where the ratings are so disconnected from the underlying security as in this case.
What are the contingencies of securitized settlements?
The financings that have securitized those settlements provide for a number of contingencies, including tobacco company bankruptcies, market shifts among tobacco companies and a decline in smoking. Typically, bond issues carry ratings reflecting the borrower’s business prospects, financial strength and debt burden.
How long did the Master Settlement Agreement last?
The Master Settlement Agreement (MSA) was signed by the tobacco industry and 46 states and four territories in 1998, providing for $206 billion in payments to the States over a 25 year period as reimbursement for health and other related costs.
Is a tobacco settlement bond good?
Despite new challenges to tobacco companies, tobacco settlement bonds remain good investments. Unlike corporate bonds issued directly by tobacco companies, debt service payments on tobacco settlement bonds do not rely on the credit strengths of any particular tobacco company, but on the tobacco industry as a whole and the smokers who continue ...
How many tobacco companies have settled under the MSA?
Eventually, more than 45 tobacco companies settled with the Settling States under the MSA. Although Florida, Minnesota, Mississippi, and Texas are not signatories to the MSA, they have their own individual tobacco settlements, which occurred prior to the MSA.
What is the prohibition on tobacco companies?
Prohibiting tobacco companies from taking any action to target youth in the advertising, promotion or marketing of tobacco products.
What is the NAAG Center for Tobacco and Public Health?
The NAAG Center for Tobacco and Public Health works with the Settling States of the MSA to preserve and enforce the MSA’s monetary and public-health mandates, including: Representing, advising, and supporting the Settling States in MSA-related legal matters , including litigation and arbitrations.
How does MSA work?
The MSA’s purpose is to reduce smoking in the U.S., especially in youth, which is achieved through: 1 Raising the cost of cigarettes by imposing payment obligations on the tobacco companies party to the MSA. 2 Restricting tobacco advertising, marketing, and promotions, including:#N#Prohibiting tobacco companies from taking any action to target youth in the advertising, promotion or marketing of tobacco products.#N#Banning the use of cartoons in advertising, promotions, packaging, or labeling of tobacco products.#N#Prohibiting tobacco companies from distributing merchandise bearing the brand name of tobacco products.#N#Banning payments to promote tobacco products in media, such as movies, televisions shows, theater, music, and video games.#N#Prohibiting tobacco brand name sponsorship of events with a significant youth audience or team sports. 3 Eliminating tobacco company practices that obscure tobacco’s health risks. 4 Providing money for the Settling States that states may choose to use to fund smoking prevention programs. 5 Establishing and funding the Truth Initiative, an organization “dedicated to achieving a culture where all youth and young adults reject tobacco.”
What law gave the FDA the power to regulate tobacco products?
In 2009, the Family Smoking Prevention and Tobacco Control Act gave the FDA the power to regulate tobacco products. State attorneys general have been active participants in helping the FDA shape its regulatory authority.
How does the MSA affect smoking?
The MSA continues to have a profound effect on smoking in America, particularly among youth. Between 1998 and 2019 , U.S. cigarette consumption dropped by more than 50%. During that same time period, regular smoking by high schoolers dropped from its near peak of 36.4% in 1997 to a low 6.0% in 2019. As advocates for the public interest, state attorneys general are actively and successfully continuing to enforce the provisions of the MSA to reduce tobacco use and protect consumers.
What is the purpose of entering into agreements with major retail chains?
Entering into agreements with major retail chains to ensure that retailers comply with state laws setting the minimum age at which tobacco products may be purchased and limiting the quantity and content of tobacco advertising at retail locations.
What is the Master Settlement Agreement?
The Master Settlement Agreement (MSA) imposes major restrictions on tobacco company marketing practices and prohibits advertising aimed at youth. The MSA restricts the participating tobacco companies in the following ways: Prohibits direct or indirect targeting of youth in advertising, marketing and promotions.
Who represented California in the tobacco litigation?
The Attorney General represented the State of California in the tobacco litigation. The Attorney General established the first full-time state tobacco enforcement unit in the country and provided consumers with a complaint line, 916-565-6486, for reporting suspected violations of the MSA.
What is the Tobacco Master Settlement Agreement?
The Tobacco Master Settlement Agreement simultaneously represents one of the most egregious examples of a government shakedown of private industry and offers a case study of the problems that stem from big government and big business scratching each other’s backs. It has turned the largest tobacco companies into an indispensable cash cow for politicians and bureaucrats, enabled irresponsible state spending, and, amazingly, has resulted in less money for public health and tobacco control while propping up a declining industry. As is the case with discriminatory tobacco taxes, the incentives of the MSA are perverse: the more people smoke, the more money the government gets to spend on whatever it wants. The biggest losers are those with tobacco-related diseases and smokers trying to quit.
What was the master settlement agreement between the tobacco companies and the states?
In November 1998, forty-six US states, along with the District of Columbia and five US territories, and the major tobacco companies entered into a contract of an extraordinary nature. (The other four states, Florida, Minnesota, Mississippi, and Texas, had entered similar agreements on their own beginning the year before.) The agreement, known as the Master Settlement Agreement (MSA), represented the culmination of a decades-long argument between the tobacco companies and state governments. After the dangers of smoking became known, the tobacco industry had engaged in extensive efforts to somehow stay in business, deflect and defeat lawsuits, and minimize negative attention. Public healthcare systems—and most of the healthcare in this country is taxpayer-funded or subsidized—had seen an influx of patients with smoking-related diseases, and state governments began filing lawsuits against the tobacco companies, claiming they wanted money to help cover smoking-related healthcare costs. The tobacco companies had lots of money but were nervous about the states’ potential to sue them out of business. So, they decided to talk. The result was the MSA.
How do politicians take advantage of the tobacco industry?
Besides politicians’ quintessential habit of spending money on things it was not meant for, there is a more insidious way that they have taken advantage of the never-ending stream of money from the tobacco companies. This is called securitization, and it occurs when a cash-strapped state borrows against promised future MSA payments so that it can get the money immediately. The state issues bonds backed up by the promise of future payments. The term “tobacco bonds” is a reference to this irresponsible practice. The buyers of bonds (the most prominent of which are powerful financial institutions) make a handsome long-term profit. State governments and their taxpayers get a raw deal. As the Campaign for Tobacco-Free Kids warned as early as 2002, states that securitize their tobacco funds get much smaller total payments, “usually for about 40 cents on the dollar or less,” than they would if they let the future revenue come in as planned. Borrowing against future payments in exchange for less money today leads to fewer resources for public health and more money for Wall Street. Yet politicians openly turn to the MSA revenue to cover for their irresponsible spending. For example, in November 2017, as Pennsylvania tried to balance its budget shortfall that had been caused by a refusal to eliminate wasteful spending, securitizing tobacco settlement revenue was the preferred course of all parties. Unfortunately, even some otherwise fiscally responsible politicians like to securitize tobacco revenue, as they consider it a better option than raising taxes.
How does the amount paid by tobacco companies affect the number of cigarettes sold?
The amount paid by the tobacco companies would directly correlate to the number of cigarettes sold—the more cigarettes sold, the more money the states would get. In exchange for their money, the tobacco companies would not be sued by state and local governments seeking recovery of costs associated with tobacco use.
How much money did tobacco companies pay to the states?
Nearly twenty years later, the tobacco companies have paid a staggering $119.5 billion to the states and territories participating in the MSA and another $25.4 billion to the four states with their own agreements. What have the states done with this huge amount of money?
What is tobacco bonds?
The state issues bonds backed up by the promise of future payments. The term “tobacco bonds” is a reference to this irresponsible practice. The buyers of bonds (the most prominent of which are powerful financial institutions) make a handsome long-term profit. State governments and their taxpayers get a raw deal.
What are the incentives of the MSA?
As is the case with discriminatory tobacco taxes, the incentives of the MSA are perverse: the more people smoke, the more money the government gets to spend on whatever it wants. The biggest losers are those with tobacco-related diseases and smokers trying to quit.
How many states issue tobacco settlement bonds?
Municipal tobacco settlement bonds are one of the largest, most liquid and highest yielding sectors within the municipal high yield bond market. Issued by 17 states, the District of Columbia, three territories and a handful of counties, senior lien tobacco bonds total about $32 billion in par amount outstanding, ...
What is municipal tobacco bond?
Municipal tobacco bonds issued against the proceeds of the landmark settlement are one of the largest, most liquid and highest yielding segments of the municipal bond market.
What are the risks of investing in bonds?
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.
What are the effects of reductions in bond counterparty capacity?
Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax.
What is the most important factor affecting the stream of settlement payments under the MSA?
The most important factor affecting the stream of settlement payments under the MSA is U.S. cigarette consumption. A quick look back in history: Cigarette production began in the U.S. in the early 20th century. In 1964, the U.S. Surgeon General released a report titled “Smoking and Health” that warned of smoking’s adverse health effects. In 1981, the number of cigarettes smoked annually in the U.S. peaked at 640 billion. This number has since fallen to 263 billion for 2014 as usage bans, cigarette taxes and other restrictions have been enacted.
Can municipal bonds be used as investment?
Yes; however, municipal tobacco bonds can still be an attractive investment. This is because they behave differently from a typical corporate bond in a default scenario. For a typical corporate, assets are sold or debtor liabilities are reorganized, leaving the original creditor with a recovery claim. For a tobacco bond, if the tobacco trust does not have enough cash to pay interest and principal due, bonds remain outstanding (no acceleration) and payments continue to be made from whatever tobacco settlement revenues are available. As a reminder, the settlement payments go on in perpetuity until the bonds are paid off or people stop smoking altogether.
Is PIMCO a trademark?
Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. ©2015, PIMCO.
How much money did states sell in tobacco bonds?
In all, states, counties, cities, and territories sold some $36 billion in tobacco bonds that are still outstanding. Most had routine repayment terms. But to get extra cash up front, some sold capital appreciation bonds, or CABs which came with steeper repayments terms.
What was the settlement with Big Tobacco?
A landmark 1998 settlement with Big Tobacco awarded states billions of dollars a year to offset the health-care costs of smoking. What seemed like a boon become a debt trap for many state and local governments when they used it to promise investors billions in the future in exchange for cash advances.
How long do bonds last?
Investors buy the bonds, providing states with cash. States repay the bondholders using the tobacco money. The typical bond lasts 30 years or less and pays interest every year.
Can investors be repaid for tobacco?
If tobacco payments fall short, investors have no right – ‘no recourse’ – to be repaid with taxpayer money. But they retain rights to future tobacco payments. Because of the steep payments promised to some bondholders, that could take years or decades in which taxpayers lose out on the tobacco money.
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