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Tuesday, June 25, 2013

Louisiana Refunds Market-Beating Tobacco Bonds

Louisiana is refinancing $638 million in bonds backed by tobacco company payments as such debt is beating the broader $3.7 trillion muni market this year.

This week’s sale by the Tobacco Settlement Financing Corp., which is refunding securities sold in 2001, is backed by the revenue from a 1998 settlement between cheap cigarettes companies and U.S. states to cover health-care costs resulting from smoking.

Louisiana officials approved the refinancing last month to take advantage of historically low interest rates, according to a statement from Kristy Nichols, administration division commissioner. During June, municipal-bond yields have climbed to near a two-year high as equities rallied and the Federal Reserve plotted an end to its quantitative-easing program in 2014.

“We are continuing to monitor market conditions in terms of timing and the precise amount of savings, and will proceed in a way that’s in the best interest of the state,” Michael DiResto, a Nichols spokesman, said by e-mail. “We look forward to strong investor interest in the bond sale despite the difficult market conditions these past several weeks.”

Fitch Ratings gives the debt a BBB+ grade, the best it grants on tobacco bonds and seven steps below top level securities. Fitch said it expects that even if tobacco companies enter bankruptcy, the payments to states would continue “because stopping would put them at the risk of litigation.”

1 comment:

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