The smoke is starting to clear in the tobacco sector as more states receiving their share of the $206 billion tobacco settlement are expected to bring deals to market before year-end.
In Washington D.C., an agreement between the Council of the District of Columbia, which is the legislative branch of the district government, and the mayor has been reached to undertake a $1.5 billion securitization, planned for September.
However, the anticipated offering has to get the nod of Congress since it is included in the district's Budget Support Act. Unlike the other states which are looking to securitize, the District of Columbia has to have its budget approved by Congress. The district is currently in the process of selecting an underwriter for the deal.
New York is also a hot spot for tobacco. After New York City, Westchester County and Nassau County closed deals in 1999, word is that Monroe and Erie counties are also getting closer to issuing transactions.
Aside from these two, officials say that Oneida County is also looking to bring to market an offering later in the fall. The county has submitted Requests For Proposals (RFP) to all the major underwriting firms and once these proposals are returned to the county, a committee will review the reports to determine whether securitization is a viable option for Oneida. The committee is expected to reach a decision within a month.
Oneida County is expected to receive $173 million over the next 30 years as its share in the settlement, the present value of which is somewhere around $76 million.
Another New York county, Rockland, has decided not to participate in the securitization market because county officials saw no financial benefits to completing one.
In California, where the tobacco settlement received by the state is divided between the state, the different counties and the state's four cities (San Francisco, Los Angeles, San Diego and San Jose), the California Statewide Communities Development Authority is currently giving workshops in the counties which are looking to securitize. The agency is offering the different counties the opportunity to securitize through a pool.
California Statewide, which is expecting the deal to price in September and close in October, has selected Salomon Smith Barney as lead and J.P. Morgan Securities and Sutro & Co. as co-leads for the deal. Orrick Herrington and Sutcliffe LLP is serving as lead counsel.
Though officials from the agency have refused to disclose which among the counties are interested in participating in the pool, it was said that 20 or more counties have shown interest so far.
Orange County, which does not plan to participate in California Statewide's pool, has submitted its petition for securitization to a referendum set to happen in November. Proceeds for the proposed securitization will go to health-related services (80%) and public safety (20%).
The county will receive roughly about $35 million-$38 million in settlement money annually throughout a 30-year period. Salomon Smith Barney is lead while Orrick Herrington is lead counsel.
According to published reports, Sacramento County is also close to bringing a $100 million deal in September with Salomon Smith Barney as lead while Stanislaus County is close to posting an RFP.
Meanwhile, in Ohio, officials in the state are currently looking for a financial advisor to help them determine whether the state should securitize its share in the settlement or not. Officials will be sending out RFPs in the next three weeks.
Officials are hoping that they would have a recommendation to the governor by mid-November. If the governor approves the securitization, which could range from $500 million to $600 million, the state plans to come out with a deal by March 1, 2001.
Florida has a long way before it could implement a securitization. Though the state has received conditional authorization to create a special purpose entity for the purpose of securitzation, further legislative action is needed to actually proceed with the offering. Currently, a Task Force has been created to write a report to be submitted to the state legislature explaining the merits of securitization.
Published reports said that Alaska, through Northern Tobacco Security Corp; is set to sell a $93 million loan for Alaska Housing Finance Corp. Puerto Rico has hired Salomon Smith Barney and Bear Stearns & Co. to bring to market a $300 million securitization that will likely happen before September. In related news, the South Carolina legislature has allowed the securitization of roughly $1 billion in tobacco settlement money. The proceeds from the securitization will go to a healthcare trust fund (73%), tobacco farmers (15%), rural economic development (10%) and local government grants for infrastructure projects (2%).