After much anticipation, legal maneuvering and planning, New York City is set to become the first municipality in the nation to conduct a public offering of tobacco settlement fund backed-bonds, pricing the $650 million issue as soon as early October, a city official said.

Lead manager for the proposed offering is Salomon Smith Barney, with Bear, Stearns & Co. and J.P. Morgan as co-managers.

According to the city official, the planned sale will have a "planned principal pay date" in 2029 and a rated maturity in 2039. Payments of principal and interest on the bonds will be made from the city's share of the $206 billion tobacco settlement fund.

The city is scheduled to receive $6.7 billion over the next 25 years out of a $12.3 billion total allocated to the state of New York.

The city had been seeking a larger share of the State's allocation, but last month dropped its challenge, along with some other municipalities, paving the way for New York to achieve state specific finality which will insure it begins receiving allocations from the fund no later than June 30, 2000.

New York City has earmarked the proceeds from the bond sale to the General Capital Construction Program, with 25% to 35% of the total going for new school construction. Overall, the city has plans to sell up to $2.5 billion tobacco-backed bonds over the next five years.

One of the last remaining items needed for the sale to proceed is ratings on the deal by rating agencies.

The agencies have already done substantial research into the entire tobacco fund issue and set the criteria for ratings. However, they have long maintained that they were not in a position to discuss any specifics on ratings since they had not been presented with any bond issues to review.

With New York City now in the final stages of bringing its tobacco ABS to market, the rating agencies have a definitive structure to analyze and ratings are expected to be available shortly, sources said. However, the city official said that they have not yet received any word from the rating agencies on the matter.

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