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Abstract: 

Although cigarettes have proven to be bad for an individual’s health, it seems government is going to extend this risk to their financial health as well—or at least to the financial health of those investors who think the $246 billion 1998 Master Settlement Agreement reached by the states with the tobacco industry constitutes bondable collateral with a predictable income stream. So far, 34 states and counties have launched some 44 municipal bond issues totaling $15.7 billion backed solely by their projected shares of the revenues they hope to receive under this agreement. Expect the volume of such bonds to grow substantially as more states and municipalities use this convenient way to close their budget deficits. Bond maturities run out as long as 2043 and carry ratings of as high as A1/A/A+ from the three rating agencies, Moodys, Standard & Poor’s, and Fitch. With such high ratings, why be concerned?

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Affiliations:  1: Income Securities Advisor, Inc..