State Successfully Sells Tobacco Revenue Bonds to Pay Bills and Keep People Employed

SPRINGFIELD - The Governor's Office of Management and Budget today is pleased to announce the state successfully sold $1.5 Billion of tax- exempt Tobacco Revenue Bonds.  The bond sale provides the state with revenue to pay all Fiscal Year 10 bills and transfers by mid-December. 

"This tobacco bond sale is one of the highest rated tobacco deals in history," said David Vaught, Director of the Governor's Office of Management and Budget. "These funds will provide the state with needed money to pay outstanding bills, keep people employed, and provide crucial services while continuing to restore fiscal health to the state."

The state's bonds priced with an all-in interest rate of 5.6 percent.  This interest rate is 90 basis points lower than the 6.5 percent rate anticipated when the General Assembly approved the bonds in the spring of 2010. 

"I'm very pleased with the hard work and great execution provided to the state by Citi Group, Barclay's Capital, and Public Financial Management," said John Sinsheimer, Director of Capital Markets for the Governor's Office of Management and Budget.  "The level of demand for this issuance exceeded expectations and allowed us to raise additional revenues to further meet state needs."

Citigroup led the transaction as Senior Bookrunner, with Barclays Capital acting as Co- Bookrunner.  The state was advised by Public Financial Management which acted as Financial Advisor.
          
The tobacco bonds are being sold through a special purpose corporation called the Railsplitter Tobacco Settlement Authority.  They are backed by payments from the 1998 Master Settlement Agreement entered into by participating tobacco product manufactures and 46 states for medical costs associated with diseases caused by tobacco use. 

Standard & Poor's (S&P) rated the short term bonds A and the long term bonds A-.  S&P last rated a tobacco revenue bond A in 2001.  Fitch rated the bonds triple B plus, the highest possible rating the agency assigns to tobacco bonds. 

This is the state's first issuance of tobacco revenue bonds.