Rhode Island is set to issue $618 million of tobacco bonds next week, which would end a seven-month delay caused by a legal challenge from OppenheimerFunds Inc.
The Tobacco Settlement Financing Corp. will offer the debt March 10, data compiled by Bloomberg show. Proceeds will retire a portion of previously issued tobacco securities. The deal also calls for siphoning some proceeds for the state's general fund, changing the order in which money is distributed. The result is that bond investors would get paid after the state.
A state court judge ruled in January that the Rhode Island corporation, which receives payments from a settlement agreement with cigarette producers, was within its rights to adjust the payments because it solicited the necessary bondholder approval before the bond sale. OppenheimerFunds, a New York-based money manager that owns tobacco debt the state sold in 2002 and 2007, questioned the deal structure.
Thomas Mullaney, executive director of Rhode Island's office of management and budget, didn't immediately return a voicemail and e-mail seeking comment on the sale. The state had initially planned to price the bonds in August.
Fitch Ratings grades the securities BBB-plus, three steps above junk, offering documents show.
Standard & Poor's also plans to rate the securities as high as 'A,' according to a presale report published Wednesday.
In a 1998 accord, tobacco companies agreed to pay 46 states for expenses associated with smoking-related illnesses. Rhode Island created the Tobacco Settlement Financing Corp. to raise money from the deal, selling bonds backed by future settlement revenue in exchange for an immediate payment.
The tobacco companies responsible for making the payments are defendants in about 7,400 lawsuits, according to the bond documents.
Meredith Richard, a spokeswoman for OppenheimerFunds, didn't immediately respond to a voicemail or e-mail seeking comment.