OppenheimerFunds Inc. squared off against the Rhode Island Tobacco Settlement Financing Corp. at a state court hearing Monday as the fund company sought to block a $593 million tobacco bond refunding sale originally slated for early August.
OppenheimerFunds is seeking a declaratory judgment from the Superior Court of Providence/Bristol County "that the Proposed 2014 Transactions violate the 2007 indenture and State law ", according to court documents. Additionally, the firm is seeking to stop the Series 2014 transaction as currently proposed, an undefined award of damages, an injunction preventing the state from attempting a similarly structured deal, and legal fees.
Plaintiffs in the case include Oppenheimer Rochester High Yield Municipal Fund, a series of Oppenheimer Multi-State Municipal Trusts, and Oppenheimer Rochester AMT-free Municipal Fund. The group is represented by Cameron & Mittleman LLP.
A group of OppenheimerFunds' mutual funds challenged the tobacco bond deal on Aug. 8, questioning the legality of the pro forma seniority stack. The preliminary official statement indicated that the Series 2014 bonds would refund the state's 2002 tobacco bonds in their entirety and part of the outstanding 2007 bonds, which were previously subordinate to the 2002 debt. The new issuance would transfer the seniority of the 2002 bonds over the 2007s to the newly issued 2014 bonds.
The sticking point, however, was a $20 million payment to the state from the tobacco corporation, according to court documents. OppenheimerFunds argues that the state has no claim to the funds and the payment would be a violation of the Tobacco Settlement Act, a document that created the public corporation issuing the debt and "incorporated a number of significant bondholder protections," according to court documents.
OppenheimerFunds claims that the payment to the state would violate language that says, "pledg[ing] to and agree[ing] to with the holders of any bonds issued under [the Act] the state will not limit or alter the rights vested in the Corporation to fulfill the terms of any agreements made with the holders, or otherwise take any action that materially and adversely affects the rights of the holders "
Citi, the lead manager, has kept the negotiated transaction on day-to-day status since Aug. 8, according to data provided by TM3.
