CHICAGO - Investment banks interested in securing a spot on Wisconsin's long-anticipated restructuring of its $1.4 billion of outstanding tobacco bonds - one of the largest deals slated to come out of the Midwest this year - have until Sept. 18 to submit their qualifications as the state seeks to revamp its current team to adapt to significant industry changes.

While the electronic deadline for submissions is Sept. 18, bankers are asked to submit additional paper copies of their proposals to the capital finance office by Sept. 19. Wisconsin is currently reviewing the submissions of financial advisers who participated in a recent request for qualifications process and the firm or firms selected will help the state put together the revised banking team.

Wisconsin capital finance director Frank Hoadley originally announced a team last October for the proposed restructuring that was included in the state's current two-year budget, but Hoadley believes a revised team is needed due to the dramatic changes on Wall Street stemming from the credit crunch and ongoing economic weakness. The structure of the deal has also significantly changed since the original request for qualifications was conducted.

Wisconsin had named Bear, Stearns & Co. the book-runner on the deal last year, but that firm has since been acquired by JPMorgan. UBS Securities LLC was also on the team but has since exited municipals. First Albany Capital Inc., an adviser on the original 2002 deal, was named a financial adviser for the restructuring but has since evolved into Depfa First Albany Securities LLC, and its stronger capital base gives it the opportunity to vie for a spot on the underwriting team.

Key tobacco bankers have also moved to other positions at their firms or changed companies, including prominent former Bear tobacco banker Kym Arnone, who worked on Wisconsin's 2002 tobacco transaction and has moved over to Lehman Brothers.

Citi, Goldman, Sachs & Co., Loop Capital Markets LLC, and Siebert Brandford Shank & Co. were named co-senior managers on the team last year, with a second tier of co-seniors to include JPMorgan, Lehman, Merrill Lynch & Co., Morgan Stanley, and UBS Securities. Another 17 firms were named as co-managers.

"We will ask everyone to restate their qualifications," Hoadley said recently. "A lot of people are moving chairs. A lot of people are losing their chairs."

The state included the tobacco restructuring plan in its current $57 billion two-year budget, which runs through next June 30, but the deal had been on hold due to high interest rates that made the state's goals difficult to accomplish. The bonds were issued in 2002 through the Badger Tobacco Asset Securitization Corp. and are repaid with Wisconsin's $5.9 billion share of payments under the 1998 national settlement between most states and the major tobacco companies.

Under the restructuring plan originally adopted last year, officials sought to refinance the bonds with the goal of generating $50 million annually to go into a permanent endowment fund to support health care and anti-smoking programs. The plan was proposed by Gov. Jim Doyle who helped negotiate the tobacco settlement when he was Wisconsin's attorney general. He was a critic of the state's use of the 2002 deal proceeds to eliminate a budget deficit.

The plan was revised last May by Doyle and the Legislature as part of a so-called budget adjustment bill crafted to close a $527 million budget deficit. Under the revised plan, the state and not the BTASC would issue the bonds and the state would put an annual appropriation pledge behind the restructured debt, which it expects would lower the interest rates on the debt and help kick-start the timing of the deal.

The goal of the transaction is to raise at least $100 million up-front savings to establish the endowment and then $50 million in annual savings afterwards. An additional $150 million in up-front savings is being sought to help close the budget shortfall.

A key goal of the new structure is to meet rating agency requirements "so that the appropriation obligations are not considered as outstanding state debt," according to the RFQ documents.

The tobacco settlement backing garnered ratings in the mid-to-high single-A category in 2002, but have since been downgraded several notches to reflect the turbulent tobacco industry that has been hit with litigation and declining profits.

The state's appropriation-backing is one notch lower than its general obligation ratings of AA from Standard & Poor's, AA-minus from Fitch Ratings, and Aa3 with a negative outlook from Moody's Investors Service. The state has $5.8 billion of GOs and $1.88 billion of appropriation-backed bonds outstanding.

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