As the nation continues distributing tobacco settlements, asset-backed securities deals are popping up like corn, with Nassau County, N.Y., hoping for a balanced budget, planning a tobacco-backed securitization most likely before the end of the year, said an advisor to the county.
"We hope that it will happen in October, and if not, then in November," said Herman Charbonneau of Roosevelt & Cross Inc., the a municipal bond brokerage house advising the Nassau County Treasury Office for a transaction.
The securitization, slated to be $200 million in tobacco-backed bonds, with a 30-year average life, will be lead by Salomon Smith Barney and Bear Stearns & Co., with Morgan Stanley Dean Witter and PaineWebber as co-managers. Salomon Smith Barney is also handling New York City's tobacco-backed issuance.
As Charbonneau explained, the four tobacco companies involved in the settlement are required to pay fees indefinitely, extending the life of the bonds. Bond length in this case is determined by what investors will allow, Charbonneau said.
"The total amount of the settlement is much larger than the $200 million in bonds," he said. "All the county is doing is realizing a portion of the settlement."
Nassau County Tobacco Settlement Corp., a company created by the county for this specific transaction, will obtain and manage the funds.
The tobacco settlement-backed ABS proposal is comparable to others, such as cigarette tax-backed bonds that have been issued in the past throughout the country. "[The tobacco settlement] involves a new revenue source, but the securitization method has been tried and proven," Charbonneau said.