New Jersey’s Tobacco Settlement Financing Corp. later this month will refund up to $4 billion of tobacco settlement asset-backed bonds to restructure settlement revenue, allowing the state to receive any potential excess revenue, Treasury spokesman Tom Vincz said yesterday.
Bear, Stearns & Co., as senior managing underwriter, will kick off pricing the week of Jan. 22. First Southwest & Co. is bidding agent for the deal and financial adviser. Bond counsel is McManimon & Scotland LLC. No insurance will be offered on the transaction, which was first reported by Bloomberg News late Tuesday.
Bond proceeds will refund Series 2002 and Series 2003 tobacco bonds, which are backed by an initial tobacco settlement payment of about $3.46 billion. The corporation pays the debt service costs on the bonds with annual tobacco settlement receipts. Once the debt service obligations are met, any unused TSRs can be used to pay down the principal amount of the bonds.
Standard & Poor’s and Fitch Ratings both assign the credit a BBB rating. Moody’s Investors Service rates the 2002 bonds Baa3, and the 2003 bonds have ratings of Baa2 and Baa3.
The new structure “will allow the state to see a resumption of a revenue stream from the tobacco settlement monies,” Vincz said.
The deal will enable 75% to 78% of excess TSR revenues to pay down the principal amount, with the state acquiring the remaining 25% to 22%, Vincz said. As of now, the state does not receive any unused TSRs as 100% of all excess revenue goes straight to the principal.
State officials do not anticipate the refunding to generate a substantial savings, if any.
“It’s expected that the present value savings would be neutral,” Vincz said.
The Series 2002 bonds priced on Aug. 15 with a par amount of $1.8 billion with bonds maturing 2008 through 2016, 2018, 2032, 2037, and 2042 with yields ranging from 4.15% with a 4% coupon in 2008 and 6.323% with a 6.125% coupon in 2042. All bonds are callable at par in 2012.
Among those bonds that carried a 5% coupon, debt maturing in 2009 was priced to offer yields closest to that day’s Municipal Market Data’s triple-A curve, with yields 118 basis points higher. Bonds maturing in 2013 were widest to the spread with yields 132 basis points over.
The Series 2003 bonds priced on Feb. 27 with a par amount of $1.659 billion with bonds maturing 2006 through 2013, 2019, 2024, 2032, 2039, 2041 and 2042 with yields ranging from 2.5% with a 2.5% coupon in 2006 and 7.05% with a 6.25% coupon in 2043. All bonds are callable at par in 2013.
Bonds maturing in 2013 carried the only 5% coupon for that deal and was priced to offer a yield 138 basis points over that day’s MMD curve.
