The state of Arkansas has recently appointed a committee to explore alternatives for its $1.6 billion share of the tobacco settlement, which includes the option of selling bonds.

The House Tobacco Settlement Task Force, formed by speaker Bob Johnson, held its first meeting which was addressed by Salomon Smith Barney managing director James Haddon, who explained the securitization option as well as trust-fund alternatives.

Following the meeting, Bridgette Pool, counsel to the Arkansas House, said that now many legislators realize securitization does not place any risk on the state, there is a lot more openness to the idea.

One of the first issuers out of the gate, though, may well be New York City, which has just announced it was dropping plans to sue New York state over the size of its allocation. The city is due to receive $6.7 billion over 25 years, slightly above 25% of the $25 billion state allocation.

Since plans for similar suits by Erie and Westchester counties have also been withdrawn, New York state is now in position to sign off on the agreement.

New York City has already worked out particulars for a $700 million asset-backed financing to support school construction projects, through a Salomon Smith Barney syndicate.

Market sources now believe the City may be in a strong position to actually launch the offering as early as October, if it is assured of receiving a tobacco settlement allocation on June 30.

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