Tobacco bond

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In finance, a tobacco bond is a type of US bond issued by a state to obtain immediate cash backed up with a won lawsuit against a tobacco company. The typical tobacco bond lasts 30 years or less and pays interest every year. [1]

Bond (finance) instrument of indebtedness

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.

A lawsuit is a proceeding by a party or parties against another in the civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used in reference to a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint. If the plaintiff is successful, judgment is in the plaintiff's favor, and a variety of court orders may be issued to enforce a right, award damages, or impose a temporary or permanent injunction to prevent an act or compel an act. A declaratory judgment may be issued to prevent future legal disputes.


By 2014, tobacco bonds made up $94 billion of the $3.7 trillion municipal bond market. They share a revenue stream from the Tobacco Master Settlement Agreement, a 1998 national settlement in which Philip Morris, Lorillard and Reynolds American agreed to make annual payments to states in perpetuity to resolve liabilities for health-care costs related to smoking. Some states — Alaska, California, Iowa, Michigan, New Jersey, New York, Ohio, Rhode Island, West Virginia, as well as Washington, D.C., Puerto Rico and Guam — borrowed against the funds, which are based on cigarette shipments. [2] [3]

Municipal bond A municipal bond is a bond issued by a local government or territory, or one of their agencies; generally to finance public projects.

A municipal bond, commonly known as a Muni Bond, is a bond issued by a local government or territory, or one of their agencies. It is generally used to finance public projects such as roads, schools, airports and seaports, and infrastructure-related repairs. The term municipal bond is commonly used in the United States, which has the largest market of such trade-able securities in the world. As of 2011, the municipal bond market was valued at $3.7 trillion. Potential issuers of municipal bonds include states, cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly owned airports and seaports, and other governmental entities at or below the state level having more than a de minimis amount of one of the three sovereign powers: the power of taxation, the power of eminent domain or the police power.

The Tobacco Master Settlement Agreement (MSA) was entered in November 1998, originally between the four largest United States tobacco companies and the attorneys general of 46 states. The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related health-care costs. In exchange, the companies agreed to curtail or cease certain tobacco marketing practices, as well as to pay, in perpetuity, various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses. The money also funds a new anti-smoking advocacy group, called the Truth Initiative, that is responsible for such campaigns as Truth. The settlement also dissolved the tobacco industry groups Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research. In the MSA, the original participating manufacturers (OPM) agreed to pay a minimum of $206 billion over the first 25 years of the agreement.

Philip Morris USA is the United States tobacco division of Altria Group.



The state of California issued $3.1 billion in tobacco bonds in 2005. [4]

California State of the United States of America

California is a state in the Pacific Region of the United States. With 39.6 million residents, California is the most populous U.S. state and the third-largest by area. The state capital is Sacramento. The Greater Los Angeles Area and the San Francisco Bay Area are the nation's second and fifth most populous urban regions, with 18.7 million and 8.8 million residents respectively. Los Angeles is California's most populous city, and the country's second most populous, after New York City. California also has the nation's most populous county, Los Angeles County, and its largest county by area, San Bernardino County. The City and County of San Francisco is both the country's second-most densely populated major city after New York City and the fifth-most densely populated county, behind only four of the five New York City boroughs.

Rhode Island

The state of Rhode Island issued $618 million in tobacco bonds in March 2015. [5]

Rhode Island State of the United States of America

Rhode Island, officially the State of Rhode Island and Providence Plantations, is a state in the New England region of the United States. It is the smallest state in area, the seventh least populous, and the second most densely populated, but it has the longest official name of any state. Rhode Island is bordered by Connecticut to the west, Massachusetts to the north and east, and the Atlantic Ocean to the south via Rhode Island Sound and Block Island Sound. It also shares a small maritime border with New York. Providence is the state capital and most populous city in Rhode Island.

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  1. Podkul, Cezary (18 August 2014). "How Tobacco Bonds Work, and What Can Go Wrong". Pro Publica. Retrieved 25 February 2015.
  2. Chappatta, Brian (24 September 2014). "Tobacco Bonds Seen Cheap as Default Forecast Raised: Muni Credit". Bloomberg Business. Retrieved 5 March 2015.
  3. Estes, Jim (6 October 2014). "How the Big Tobacco Deal Went Bad". The New York Times. Retrieved 3 March 2018.
  4. Cherney, Mike (2 April 2013). "California Tobacco Bond Sale a Hit With Investors". Wall Street Journal. Retrieved 8 March 2015.
  5. Smith, Kate (3 March 2015). "Rhode Island $618 Million Tobacco Bond Ends Seven-Month Wait". Bloomberg. Retrieved 8 March 2015.