State and Bondholders to Receive $26 Million in Settlement with Tobacco Companies
March 12, 2018
(Anchorage, AK)—Attorney General Jahna Lindemuth today announced the State and the bondholders of the Northern Tobacco Securitization Corporation (NTSC) would receive payments totaling approximately $26 million upon final joinder in a settlement with tobacco companies. In addition, the State and NTSC’s bondholders are projected to receive additional releases totaling approximately $19 million over the next five years. The settlement relates to disputes with various tobacco companies over the Master Settlement Agreement (MSA) for the years 2005 through 2017.
The MSA embodies the settlement in 1998 between major tobacco companies and 46 states, including Alaska, and six U.S. territories. The states and territories sued the tobacco companies claiming that they had engaged in a host of unfair and deceptive conduct related to the advertisement, marketing and sale of tobacco products that caused damages to the States, such as increased health-care costs. The MSA provides significant public health protections, such as limiting sponsorship of events by tobacco companies and prohibiting tobacco companies from marketing cigarettes to youth. In addition to these public health provisions, the MSA requires the tobacco companies to make payments to the States in perpetuity to offset a portion of the costs of smoking-related diseases incurred by the States. The Attorney General's Office is charged with enforcing certain provisions of the MSA, including the close monitoring of the tobacco companies' annual payment and defending the State over disputes in the enforcement of the MSA.
In 2000, and again in 2006, the Alaska Legislature made the decision to securitize a portion of the payments under the MSA and authorized the Alaska Housing Finance Corporation (AHFC) to create a subsidiary corporation, the NTSC, for the express purpose of issuing bonds secured by a portion ofAlaska’s future MSA revenues. The NTSC issued bonds in 2000, 2001, and 2006 for upfront tobacco payments totaling $556 million with the money from the settlement.
"In the years immediately following the settlement with the tobacco companies, the State believed it was in its best interest to issue bonds for future payments, instead of getting payments on an annual basis," said Attorney General Jahna Lindemuth. "It has been left to the Attorney General's Office to vigorously defend the State's enforcement actions and ensure that the money is received to repay the bonds. Although I am confident we could have continued to defend the State with the same level of success as in the past, this settlement ensures access to monies that rightly belong to the State, allowing us to repay the bondholders as intended."
Because the MSA imposes strict regulations on participating tobacco manufacturers, it contains a number of provisions ensuring that states guard against non-participating manufacturers gaining an unfair competitive advantage over those companies which had signed the document. The settling tobacco companies could dispute a state’s efforts to diligently enforce state laws against the non-participating manufacturers. These disputes are resolved through an arbitration panel. If the panel found that Alaska was not diligent, Alaska could lose millions of dollars. The settlement reached by the State of Alaska would resolve these challenges for 2005 through 2017.
"These types of challenges are expensive for the State to defend, and if we can resolve disputes through a settlement that ultimately benefits the State and the bondholders instead of litigation, it’s a good result for the State," said Attorney General Lindemuth.
Other states have faced the same challenge and more than half of the original states that signed the MSA have settled diligent enforcement disputes through 2017. Alaska’s formal settlement is still subject to satisfaction of certain securitization-related covenants.
Attorney General Lindemuth applauded the efforts of the Department of Revenue’s Tax Division and the Civil Division within her office for successfully negotiating and entering into a settlement that results in an overall net positive to the State and the NTSC’s bondholders. "Not only does this settlement resolve significant risk for both the bond holders and the State, it also results in approximately $45 million dollars for Alaska and it’s bondholders in the next five years. I am proud of the work the economists and attorneys did on behalf of the State on this case."
CONTACT: Assistant Attorney General Cindy Franklin at 269-5100 or email@example.com.
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