The four manufacturers— Philip Morris USA, R. J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corp., and Lorillard Lorillard Tobacco Company was an American tobacco company that marketed cigarettes under the brand names Newport, Maverick, Old Gold, Kent, True, Satin, and Max.Lorillard Tobacco Company
Full Answer
What is a tobacco bond?
In finance, a tobacco bond is a type of US bond issued by a state to obtain immediate cash backed up with a won lawsuit against a tobacco company.
How much tobacco bond money is still outstanding?
Because of the steep payments promised to some bondholders, that could take years or decades in which taxpayers lose out on the tobacco money. In all, states, counties, cities, and territories sold some $36 billion in tobacco bonds that are still outstanding. Most had routine repayment terms.
What states have a tobacco bond?
Tobacco bond. Some states — Alaska, California, Iowa, Michigan, New Jersey, New York, Ohio, Rhode Island, West Virginia, as well as Washington, D.C., Puerto Rico and Guam — borrowed against the funds, which are based on cigarette shipments.
How did the tobacco settlement with Big Tobacco affect states?
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.
What are tobacco settlement bonds?
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 name of the agreement that settled lawsuits between states and the tobacco companies and now funds tobacco education programs and research?
In 1998, 52 state and territory attorneys general signed the Master Settlement Agreement (MSA) with the four largest tobacco companies in the U.S. to settle dozens of state lawsuits brought to recover billions of dollars in health care costs associated with treating smoking-related illnesses.
What is tobacco settlement?
Under the Master Settlement Agreement, seven tobacco companies agreed to change the way they market tobacco products and to pay the states an estimated $206 billion.
What 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.
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 states are part of the Master Settlement Agreement?
Adoption of the "Master Settlement Agreement" (Florida, Minnesota, Texas and Mississippi had already reached individual agreements with the tobacco industry.) The four manufacturers—Philip Morris USA, R. J.
What is tobacco settlement money used for?
In that settlement, state governments received $246 billion to restrict cigarette sales and marketing by forbidding manufacturers from targeting youth and banning specific types of media (e.g., cartoons). The settlement funds were also to be used for prevention and cessation programs.
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 year was tobacco settlement?
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.
Does the government get money from cigarettes?
State and local governments collected $19 billion in revenue from tobacco taxes in 2019, which was 0.6 percent of state and local general revenue.
Did tobacco companies lie?
In 2006, the US District Court for the District of Columbia ruled that tobacco companies were guilty of breaking civil racketeering laws, marketing to children and minority populations, and lying to the public about the dangers of smoking.
How many Big Tobacco companies are there?
big five tobacco companiesIn the United States, the big five tobacco companies have worked together to conceal scientific evidence on the negative affects of tobacco.
When was the Master Settlement Agreement?
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 first tobacco lawsuit?
In 1994, Mike Moore, the state attorney general, filed the first state lawsuit against big tobacco. Individual lawsuits by smokers failed because courts held people responsible for their decision to smoke, but Moore argued that Mississippi shouldn't be forced to pay the costs of treating smoking-related diseases.
What did tobacco companies get sued for?
The United States Justice Department has filed a massive civil lawsuit against the country's major tobacco companies, seeking to recover billions of dollars in long term costs related to treating ill smokers covered by the government health programmes.
When was the tobacco industry sued?
In 1999, the DOJ sued the nation's largest cigarette manufacturers and tobacco trade organizations in the U.S. District Court for the District of Columbia (“District Court”), claiming civil fraud and racketeering violations under the Racketeer Influenced and Corrupt Organizations (RICO) Act.
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.
Do states get cash up front?
States and localities got cash up front but may end up paying back a lot more than they expected.
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.
What is the tobacco master settlement agreement?
They share a revenue stream from the Tobacco Master Settlement Agreement, a 1998 national settlement in which Philip Morris, Lorillard and Reynolds American agreed to make annual payments to states in perpetuity to resolve liabilities for health-care costs related to smoking.
How long does a tobacco bond last?
The typical tobacco bond lasts 30 years or less and pays interest every year. By 2014, tobacco bonds made up $94 billion of the $3.7 trillion municipal bond market.
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.
When did New Jersey issue tobacco bonds?
New Jersey stands as the prime example. The state first issued tobacco bonds in 2002 and 2003, spackling holes in the state budget with the $3.5 billion they raised. “We basically burned it all in two years,” said David Rousseau, a deputy treasurer at the time who became state treasurer from 2008 to 2010. “It was not one of New Jersey’s better financial moves.”
Why did Cordray say it made sense to sell the tobacco business?
In public statements promoting the deal, Cordray said it made sense because tobacco payments might shrink in the future.
Why did states agree to the CABs?
Analysts say states agreed to the CABs' steep repayment terms to squeeze the tobacco settlement money for all it was worth . “They were designed to milk every last dime,” said Dean Lewallen, a senior research analyst at investment manager AllianceBernstein in New York.
How did Wall Street help tobacco companies?
territories for the health-related costs of smoking. Wall Street helped turn their annual payments into upfront cash by selling bonds to investors. Some of the deals included a form of high-risk debt, capital appreciation bonds, which obligated governments to pay out billions of their tobacco income in the future. Explore »
Which counties have CAB turbo prepayments?
Of the four jurisdictions with scheduled CAB turbo prepayments so far, only one has made them, ProPublica found: Placer County, California, which has a relatively small, $14.3 million issue promising a $68 million payoff. The other three, pooled tobacco CABs sold by New York counties, have not.
Which banks are now defunct?
Citigroup, JPMorgan, UBS, Goldman Sachs, Morgan Stanley and now-defunct firms like Bear Stearns, Lehman Brothers and Merrill Lynch all dedicated bankers to the cause, pitch documents show. Bear Stearns even had its own, 21-strong “Tobacco Securitization Group” devoted to monetizing the settlement.
