Case Study

Buckeye Tobacco Settlement Financing Authority

$5,352,196,396.50 Tobacco Settlement Asset-Backed Refunding Bonds

Estrada Hinojosa Served as Co-Managing Underwriter for the Bond Buyer’s “2020 Deal of the Year” for the Midwest Region

The issue was met with robust demand as buyers were looking for higher-yielding issues in the current low interest rate environments. The issue was able to attract a variety of buyers since portions of the deal were taxable and tax-exempt, different call features, maturities all across the yield curve and including serial bonds, term bonds and capital appreciation bonds. The ample order book led the underwriters to lower yields between 15 to 28 basis points.

The Bonds were broken into 5 Subseries:

    • $328.4 million Series 2020A-1 Class1 Senior Current Interest Bonds (Taxable)
    • $1.139 billion Series 2020A-2 Senior Current Interest Bonds
    • $100 million Series 2020B-1 Class 2 Senior Current Interest Bonds (Taxable)
    • $3.380 billion Series 2020B-2 Class 2 Senior Current Interest Bonds
    • $404.286 million Series 2020B-3 Class 2 Senior Capital Appreciation Bonds

The bonds priced early in 2020 just as the pandemic was beginning to create shutdowns. Over the past 10 years the cigarette industry had seen a reduction in smoking habits and concentration in cigarette manufacturers. The 2020 Bonds were issued to refund and restructure the 2007 Issue. The Series 2020 Senior Bonds are special revenue obligations of the Authority and are payable solely from the Pledged Tobacco Receipts. In 1998 the then four largest tobacco companies entered into the The Tobacco Master Settlement Agreement (MSA) and settled various lawsuits filed by 46 U.S. states, Washington, D.C., and several U.S. territories. The collateralized receipts were made up of the payments participating manufacturers (PMs) make under the MSA that are due to the State of Ohio, which constitutes the state’s tobacco assets. Tobacco receipts were stress tested with various sensitivities of decline and received A ratings from Moody’s and S&P.