In finance, a tobacco bond is a type of US bond issued by a state to obtain immediate cash backed up with a won lawsuit against a tobacco company. The typical tobacco bond lasts 30 years or less and pays interest every year.
Contents
By 2014, tobacco bonds made up $94 billion of the $3.7 trillion municipal bond market. They share a revenue stream from a 1998 national settlement in which Philip Morris, Lorillard and Reynolds American agreed to make annual payments to states in perpetuity to resolve liabilities for health-care costs related to smoking. Some states and cities borrowed against the funds, which are based on cigarette shipments.
California
The state of California issued $3.1 billion in tobacco bonds in 2005.
Rhode Island
The state of Rhode Island issued $618 million in tobacco bonds in March 2015.