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N.Y. May Drop 'Tobacco' From Bond Sale

May 28, 2003|From Bloomberg News and Reuters

New York State may delete the word "tobacco" from future sales of tobacco-settlement bonds, to overcome investors' reluctance to buy the debt, some state legislators said.

Underwriters said "it would be better, cheaper, if the underwriting did not contain the word 'tobacco' in it," said Assembly Speaker Sheldon Silver, a Democrat.

The bonds still would primarily be backed by payments tobacco companies are expected to make to New York, as well as to other municipalities, over the next 25 years as part of a 1998 health-liability settlement.

Investors have been balking at buying the bonds as court settlements stack up against the cigarette firms, raising the risk of missed payments. New York City and 14 states, including California, already have borrowed $19 billion via such securities.

On Tuesday, Gov. George Pataki told reporters in Albany that the state would try to sell more than $2 billion of the bonds within two weeks.

California, by contrast, has indefinitely postponed sales it planned for this spring to help plug its budget gap.

Goldman Sachs Group Inc., which may help sell the New York bonds, approached the Senate about making the name change, said John McArdle, spokesman for Majority Leader Joseph Bruno, a Republican.

New York's bonds would be issued through an agency that would replace the Tobacco Settlement Financing Corp. Silver said the name change would help potential buyers to distinguish between bonds backed solely by tobacco settlements and those that pledge a second source of revenue.

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