South Carolina Tobacco Authority Set to Issue $300M of Refunding Debt

ATLANTA The South Carolina Tobacco Settlement Revenue Management Authority is selling close to $300 million of refunding debt tomorrow, and the deal is structured partly to save the state money.

These bonds were first sold in 2001, and that deal was one of the first state tobacco bond deals to hit the market following the 1998 settlement between states and the major tobacco manufacturers.

Goldman, Sachs & Co. is the book-runner and Haynsworth Sinkler Boyd PA is the bond counsel for tomorrow's sale, which is expected to total about $298.3 million.

The deal comes in the week when Standard & Poor's said South Carolina is experiencing a restructuring economic base veering away from manufacturing and toward a more service-oriented economy and its financial position has stabilized.

The ratings reports on this issue largely reflect the position the agencies have taken on the tobacco settlement securitizations as a sector. Moody's Investors Service noted that its rating of the Series 2008 bonds, are "under review with direction uncertain," according to the preliminary official statement, and their rating is Baa1.

Standard & Poor's states that its ratings on certain tobacco settlement securities are on negative watch and all other tobacco settlement securitizations, including its ratings of the Series 2008 bonds, have a negative outlook. It rates these bonds A-minus.

Fitch Ratings' view of the tobacco industry, according to the POS, is a key factor in its ratings of tobacco settlement securitizations, including its ratings of the Series 2008 bonds. Fitch's outlook on the unsecured credit profile of the tobacco industry is stable. Fitch is expected to rate these bonds BBB.

The POS states that over the course of the past few years, ratings of tobacco securitization bonds in general, and those of the authority specifically, were revised downward by all three of the major credit rating agencies. Also, it was noted that these rating actions had been precipitated by rating agency concerns that there was a general "adverse litigation environment" in the tobacco industry as far as declines in industry volume shipments and market share losses.

The bonds have maturities through 2018. The bonds being refunded were originally sold as turbo term bonds maturing through 2030, but officials at the time of the 2001 sale said they expected all the debt to be repaid by 2018.

In rating the deal, Moody's analysts said that they had evaluated projections of domestic tobacco consumption over the life of the transaction and risks associated with downward adjustments to payments under the MSA. Sally Acevedo, one of the report's authors, noted that bonds securitizing the tobacco settlement are not guaranteed by the government.

She added that the agency's long-term unsecured ratings on tobacco companies reflect the bankruptcy risk facing each company for the next three to five years. The ratings also reflect concerns about potential litigation risk and the likelihood that credit issues could result in the bankruptcy of one or more of these companies.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER