Governor Warner Announces Successful Sale of Tobacco Settlement Bonds
Governor Warner Announces Successful Sale of Tobacco Settlement Bonds
Proceeds of securitization to fund Southside and Southwest economic development projects
Governor Mark R. Warner announced the successful sale today of $448.3 million in Tobacco Settlement Asset-Backed Bonds, Series 2005. The bonds are backed by 25% -- or half of the portion dedicated to indemnify tobacco farmers and redevelop tobacco-dependent communities -- of the Commonwealth's share of payments to be received under the 1998 Master Settlement Agreement ("MSA") with the nation's tobacco companies.
"We got great interest rates, and that means we've been able to put $389.8 million in the bank today for Southside and Southwest Virginia," said Governor Warner. "Good timing and the way our team structured the deal make Virginia the first state to sell tobacco settlement bonds -- since uncertainties with tobacco court rulings chilled the market - without having to put the state's credit at risk in any way."
As a result of this sale, $389.8 million has been deposited into an endowment to fund economic development projects throughout Southside and Southwest Virginia. The endowment will be used to fund the long-term spending plan approved by the Tobacco Indemnification and Community Revitalization Commission.
The General Assembly and Governor Warner authorized the sale, termed a securitization, in 2002. Securitization allows states to "cash out" on all or a portion of their Master Settlement Agreement proceeds. Virginia chose to "securitize" 25% of its MSA payments, rather than the full 50% dedicated to farmers and tobacco communities. That decision was made to give the Tobacco Commission flexibility in making payments to farmers, as well as to take a conservative approach that neither relies on the MSA to continue to pay out over 20 years, nor on bond sales to be the only vehicle to continue to provide the funds due to the Commonwealth from the MSA.
The Tobacco Settlement Financing Corporation (TSFC) was created to accomplish the sale of the Bonds. A similar transaction undertaken in 2003 was cancelled when court rulings destabilized the tobacco bond market and would have meant a less generous return to Virginians.
"I am extremely pleased with these results," TSFC Chairman Jerry B. Flowers II said. "This endowment represents a once-in-a-generation economic development opportunity for Southwest and Southside Virginia."
The issue is composed of four maturities of tax-exempt term bonds. The bonds, which are not obligations of the Commonwealth of Virginia, were rated BBB/ Baa3/BBB by Fitch Ratings, Moody's Investor Service, and Standard & Poor's Rating Services.
"The strong demand for the bonds in the marketplace was very gratifying and produced very favorable interest rates," said Jody Wagner, Treasurer of Virginia and Secretary/Treasurer of the TSFC. "Our sale represents the first time since March of 2003 that a state has sold bonds backed solely by the payments to be received under the MSA."
http://www.governor.virginia.gov/Press_Policy/Releases/2005/May05/0516c.htm