Tobacco Securitizations

Orrick is among the very few firms in the country with substantial experience in the securitization of tobacco settlement payments to states (and local governments in New York and California) under the Master Settlement Agreement entered into in November 1998 with tobacco companies.

In part, this is because Orrick is one of the few firms with the combination of resources required for such financings – public finance, securitization, tax and bankruptcy. 

From the first transaction for the city of New York in November 1999 through some of the most recent, we have been counsel on more than 65 tobacco securitizations (including three pools) aggregating more than $30 billion. We are thoroughly familiar with, and have crafted disclosure and rendered required opinions about, the Master Settlement Agreement, the Model Statute, the Consent Decree and other related documents, agreements and proceedings. We have worked through all of the structural matters and rendered all of the opinions required by the rating agencies, underwriters and other parties to tobacco securitizations, whether as bond/transaction counsel, disclosure counsel, tax counsel or underwriter's counsel.

  • Uses

    There are a half dozen or so possible uses of tobacco securitization bond proceeds: current capital projects, endowment for future capital projects, endowment for non-capital programs, refundings, and direct deposit into the general fund of the state. Each use results in quite different tax analysis. We have experience in all of these uses, including combinations and indirect applications (for example, refundings that free up general fund moneys otherwise required to pay debt service on outstanding bonds). We are particularly advanced in the tax analysis of various direct and indirect working capital/general fund applications (a rare expertise given the scarcity of long-term tax-exempt bonds used for short-term working capital purposes), which is also the use most likely to draw IRS audit attention.


    All tobacco securitizations are based on the same tobacco industry credit. As a result, you would expect offering circular disclosure to be fairly standardized. To some extent it is. However, almost every day something happens that may require changes or additions to the disclosure; for example, periodic and other filings by tobacco companies with the SEC; litigation by smokers, states, the federal government and foreign jurisdictions against one or more tobacco companies (and judgments in such litigation that could result in bankruptcy of tobacco companies); litigation by nonparticipating tobacco manufacturers and other challenges to the Master Settlement or the Model Statute; federal and state legislative and regulatory changes that may affect cigarette consumption (such as efforts to regulate tobacco as a drug or for certain types of advertising); and challenges by tobacco companies to the amount of tobacco settlement payments they owe (based on claims of inaccurate consumption data or inadequate state enforcement of the model statute aimed at nonparticipating tobacco manufacturers). Disclosure counsel must not only be thoroughly familiar with the standard disclosure format and with the tobacco industry but also be constantly monitoring new developments.

    Specific Issues

    Among the securitization and other tobacco settlement revenue financings on which we have worked or are working are those for the states of California, Colorado, Oregon, North Dakota, South Carolina and Wisconsin, New York City and 47 counties in New York and California, the University of Hawaii, Guam and a number of the plaintiff’s attorneys that had represented various states in the tobacco litigation. In addition, we are working with a number of other states on legislation authorizing tobacco bonds.

    Post-Issuance Administration

    In conjunction with our unique subsidiary company, BLX Group, we have also been engaged to render a full range of post-securitization administrative services for 45 tobacco securitization clients.​