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Tobacco Bonds May Be Dangerous to Your State's Financial Health

After a bruising legal fight, tobacco companies agreed in 1998 to compensate 46 states, the District of Columbia and five U.S. territories for the health-related costs of smoking. Wall Street helped turn their annual payments into upfront cash by selling bonds to investors. Some of the deals included a form of high-risk debt, capital appreciation bonds, which obligated governments to pay out billions of their tobacco income in the future. Related: How Wall Street Tobacco Deals Left States With Billions in Toxic Debt

Compare states by

Payments under the 1998 legal settlement are based on cigarette sales, which have declined. States and others have received $100 billion from the settlement so far. (Florida, Minnesota, Texas and Mississippi settled tobacco lawsuits separately.)

  • Settlement money received in 2014

    Payments under the 1998 legal settlement are based on cigarette sales, which have declined. States and others have received $100 billion from the settlement so far. (Florida, Minnesota, Texas and Mississippi settled tobacco lawsuits separately.)

  • Amount traded to investors

    The percentage of annual tobacco settlement payments committed to repay investors who own tobacco bonds outstanding as of 2014.

  • Who sold tobacco bonds?

    States that wanted up-front cash sold two kinds of bonds giving investors the right to tobacco payments. Current interest bonds, which pay regular principal and interest, and capital appreciation bonds, which don’t require payments until maturity, typically 40 to 50 years later, when the accumulated debt can reach billions.

  • High-risk bonds: What states received

    States and territories that sold higher-risk capital appreciation bonds and the amount of money they received up-front. These bonds were usually a small part of a larger tobacco deal.

  • High-risk bonds: What states agreed to pay

    States and territories that sold higher-risk capital appreciation bonds and the total amount of money they agreed to pay investors on these bonds at maturity. Generally, payoffs are due within 40 to 50 years.

  • State Smoking prevention

    Amount spent on smoking cessation programs as a percentage of the amount received from the tobacco settlement, 2014 fiscal year.

State Settlement Money Received in 2014
(millions)		 Portion of Settlement Receipts Pledged to Repay Bonds Proceeds from Selling Tobacco Bonds That Are Still Outstanding
(millions)		 Capital Appreciation Bonds,
Amount Sold
(millions)		 Capital Appreciation Bonds,
Amount Owed
(millions)		 Smoking Prevention Spending as Percentage of Settlement Receipts
(FY 2014)


Sources: National Association of Attorneys General, Thomson Reuters, Campaign for Tobacco Free Kids, Municipal Securities Rulemaking Board and Richard Larkin, analyst at Herbert J. Sims & Co.

* California and New York split their proceeds with cities and counties, who did their own tobacco deals. Those deals are excluded from the above totals.
** Capital appreciation bond data comprises turbo capital appreciation bonds, excluding serial and convertible issues