BRADENTON, Fla. — The Virginia Tobacco Settlement Financing Corp. must dip into reserves to make interest payments this year.
The unscheduled draw on debt service reserves reflects financial difficulty, VTSFC told bondholders in a July 16 notice.
"Total collections pledged to the payment of debt service on the bonds will not be sufficient to pay the scheduled 2015 interest payments on the bonds," the notice said. "Accordingly, an unscheduled draw on the senior liquidity reserve account will occur in the amount of $2,644,396 to provide for the payment of interest on the bonds."
The reserve draw leaves a balance of $82.75 million in the account, according to the notice on the Municipal Securities Rulemaking Board's EMMA filing system. It is the third draw on reserves since the bonds were sold.
The corporation issued $1.15 billion of tobacco bonds in 2007 as current interest, convertible, and capital appreciation bonds. Interest payments on the bonds are due June 1 and/or Dec. 1, depending on the series, according to the official statement.
The 2014 audit showed $2 billion of debt outstanding, including $833.3 million of unaccreted capital appreciation bonds.
In October, VTSFC said it would not dip into reserves for the December 2014 interest payment due to a settlement with bankrupt Lehman Brothers related to guaranteed investment contracts with the bank.
In February 2014, Moody's Investors Service downgraded the corporation's 2007A, B-1, and B-2 bonds to B2 from B3 after a change in methodology for tobacco settlement revenue securitizations.
Standard & Poor's in January affirmed its B-minus ratings on the A and B bonds, as well as CCC-plus ratings on the 2007C and CCC ratings on the 2007D bonds.
