The latest to enter the tobacco arena is the state of Colorado, where state treasurer Michael Coffman said he would like to sell asset-backed securities representing the entire discounted value of the state's $3.3 billion share of the $206 billion settlement.

The actual amount of debt that Coffman proposes selling is about $900 million to $925 million. He estimated that the present value of the settlement for Colorado is about $1.18 billion, with investment bankers having told him that between 75% and 80% of this amount could be packaged as ABS. However, if the state were to purchase a surety contract, which it will need if there are no other guarantees of payment, the amount would be reduced to about the $900 million level.

The proceeds would be invested in a trust fund and the annual return, estimated at about $60 million, would be available for the state's fiscal budget to finance ongoing projects. The benefit, according to Coffman's plan, is that after the 25-year tobacco payout period ends, the state would still have its trust fund intact and the annual payouts could continue unabated.

In related developments, the New York State Appellate Division ruled against New York City in a case in which the city had been seeking to substantially increase its share of the New York state allocation of tobacco settlement funds. The city has 30 days in which to decide whether to appeal the unanimous decision of the five-judge panel.

Although the Appellate Division ruling did apparently remove one hurdle to an early securitization by Long Island's Nassau County of its share of the settlement, county officials said they can't proceed until all snags are removed. The county is looking to these funds to help close a $200 million budget gap. - David Feldheim

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