Dec 18 U.S. cigarette makers including Philip
Morris USA and R.J. Reynolds Tobacco Co said on Tuesday they
reached a settlement with 17 states in a long-running dispute
over the amount of payments they are required to make under the
1998 landmark anti-smoking agreement.
Under the settlement, the states will receive their share of
$4 billion in disputed payments and the manufacturers will
receive credits against future payments.
The payments resulted from the 1998 national accord that
obliges companies to help cover the health bills of ailing
States, counties and cities have sold nearly $40 billion of
bonds backed by the more than $200 billion in payments that U.S.
cigarette makers agreed to make to them over time.
So far in 2013, returns on tobacco bonds have largely
outperformed the rest of the $3.7 trillion municipal bond market
despite concerns expressed by credit rating agencies about the
decline in tobacco consumption.
In July Moody's investors service warned that the majority
of tobacco bonds sold by U.S. states, counties and cities will
default if cigarette consumption keeps falling at a 3 percent to
4 percent annual pace.
In December, California and New York's Nassau County tapped
reserve for payments on three different series of state tobacco
bonds due to insufficient tobacco settlement revenue.
The 46 states that participated in the 1998 agreement shared
$6.15 billion in payments in April, up from $6.03 billion in
April 2011, according to the National Association of Attorneys
Tobacco companies, including Marlboro cigarette maker Philip
Morris, a unit of Altria Group Inc, and Camel cigarette
maker R.J. Reynolds, a unit of Reynolds American Inc,
have for years disputed the amount of payments they owe after
losing market share to companies that did not agree to the 1998
"This agreement resolves disputes with a large group of
states on financial terms that are fair to the parties and in a
way that we believe will lead to a better method for resolving
these issues in the future," Denise Keane, Altria Group's
executive vice president and general counsel, said in a
The states in the settlement are Alabama, Arizona, Arkansas,
California, Georgia, Kansas, Louisiana, Michigan, Nebraska,
Nevada, New Hampshire, New Jersey, North Carolina, Tennessee,
Virginia, West Virginia and Wyoming. Also settling are Puerto
Rico and the District of Columbia, the tobacco companies said.
Philip Morris said it will receive a total of about $450
million in credits toward payments over the next five years.
Reynolds said its credits will total more than $1 billion while
Newport cigarette maker Lorillard Inc said its credits
will be at least $198 million.
The agreement also allows other states to enter the
settlement and is subject to approval by a panel that has been
arbitrating the dispute over the payments. If they do not join
the settlement, the arbitration will continue.
Altria shares closed at $32.59 on Tuesday on the New York
Stock Exchange, while Reynolds closed at $41.94 and Lorillard
ended at $116.09.