California today expects to complete a sale of $3.2 billion of tax-free bonds backed by payments owed the state by the tobacco industry under a 1998 health liability settlement.
The deal is a refinancing of the state's initial tobacco-bond sale in 2003. Because interest rates on newly issued bonds of this type have declined sharply since 2003, the state can save money by refinancing the debt.
Small investors were permitted to put in bids for the bonds Tuesday. The annualized yields offered included 4.38% on an insured series maturing in 33 years and 4.7% on an uninsured series maturing in 40 years.
Because the bond interest is exempt from federal and state income tax, the true returns to investors can be much higher.