Chautauqua County in New York State plans to issue $33.4 million in tobacco bonds to refinance the series 2000 outstanding tobacco bonds, according to a Fitch Ratings presale report.

Jefferies has been mandated to lead the Series 2014 deal. The transaction is backed by payments made from the participating tobacco manufacturers to the states under the master settlement agreement (MSA).

Proceeds from the deal will also be used to fund the debt service reserve account and pay the cost of 2014 bond issuance.  Fitch stated in the presale report that debt service reserve account is expected to be funded at the liquidity requirement of $2,220,874 (the debt service reserve requirement) and is available, if available funds are insufficient, to pay current interest and principal on the respective maturity dates of the series 2014 bonds.

The series 2014 serial bonds will consist of approximately $2.20 million of fixed-rate current interest bonds, which will mature annually between June 1, 2017 and June 1, 2024. The remainder of the deal consists of turbo term bonds maturing from June 1, 2022 through June 1, 2048. The turbo bonds will be issued with an early call feature beginning on June 1, 2015. Fitch has assigned a preliminary ‘BBB+’ rating to all of the bonds. 

The deal follows Kern County’s tobacco bond refinancing which began marketing last week. The California County Tobacco Securitization Agency (Kern County Tobacco Asset Securitization Authority) launched a $95.5 million offering of bonds backed by payments from tobacco companies that would refinance a portion of tobacco bonds it issued in 2002, according to Fitch. 

The series 2014 serial bonds will consist of approximately $28.65 million of fixed-rate current interest bonds, which will mature annually between June 1, 2015 and June 1, 2024. There are also $66.84 million of term bonds maturing from June 1, 2029 through June 1, 2040 are subject to optional redemption, to the extent funds are available in the surplus account, commencing June 1, 2015.

Raymond James is the lead underwriter. 

Tobacco bond refinancings have run into some trouble.  In late July, Rhode Island launched an offering of $593 million of new bonds backed by payments from participating tobacco manufacturers under the Master Settlement Agreement. Proceeds would be used to redeem approximately $523 million of tobacco settlement bonds outstanding that it issued in 2002, repurchase some of the notes it issued in 2007, and make a payment of at least $20 million to the state, according to the prospectus.  The sale however was blocked by a group of Oppenheimer's mutual fund.

Oppenheimer  questioned the legality of the pro forma seniority stack and argued that the $20 million payout to the state would be a violation of the Tobacco Settlement Act, a document that created the public corporation issuing the debt and "incorporated a number of significant bondholder protections," according to court documents.

Oppenheimer claims that the payment to the state would violate language that says, "pledg[ing] to and agree[ing] to with the holders of any bonds issued under [the Act] the state will not limit or alter the rights vested in the Corporation to fulfill the terms of any agreements made with the holders, or otherwise take any action that materially and adversely affects the rights of the holders."

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