Tobacco bonds deteriorating


The $96B tobacco bond market is continuing its decline, as most Americans have quit smoking at a faster rate than estimated when most of the bonds were sold in previous decades. Health risks, public smoking bans, e-cigs and new excise taxes have all been factors in the decrease.

A forecast last month from Moody's Investors Service estimates 65-80% of tobacco bonds are headed toward default, and many analysts predict the default to occur by the end of the decade.

Cigarette consumption fell an annual average of 3.4% since 2000, while many bonds were set up to only withstand drops of 2-3%. E-cigarettes have also diminished market share, with sales growing by more than $2.2B in the last four years.

Related tickers: (MO) (BTI) (LO) (PM) (ECIG) (VAPE) (HPNN) (MCIG) (NTRR) (VAPR) (VPCO) (RAI) (AHII)

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Comments (23)
  • Patent News
    , contributor
    Comments (1464) | Send Message
     
    good news! tobacco companies are evil
    24 Jun 2014, 05:54 AM Reply Like
  • spparowlake
    , contributor
    Comments (359) | Send Message
     
    the tobacco bonds were issued by states to collect up front the money from tobacco settlement and future taxes.The states wanted the money now to waste rather then take the tax money over time. The states then spent and wasted the money on everything but the health care of smokers.
    24 Jun 2014, 09:46 AM Reply Like
  • buyfacebookstock
    , contributor
    Comments (7) | Send Message
     
    Good. The mj indestury will be king
    24 Jun 2014, 07:58 AM Reply Like
  • user27205633
    , contributor
    Comments (1019) | Send Message
     
    I have heard its some of the best tobacco in the world?
    24 Jun 2014, 08:47 PM Reply Like
  • I love me some Me!
    , contributor
    Comments (2) | Send Message
     
    Nothing wrong with the profits the big Tobacco companies offer. Long on MO and PM. Long live King Tobacco!
    24 Jun 2014, 07:59 AM Reply Like
  • berloe
    , contributor
    Comments (2141) | Send Message
     
    I don't understand the relationship of smoking and bond defaults. Are you saying the tobacco companies will default?
    24 Jun 2014, 08:29 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (32967) | Send Message
     
    Tobacco bonds defaulting = tobacco shares towards zero.
    24 Jun 2014, 08:48 AM Reply Like
  • Matthew Mazurczak
    , contributor
    Comments (1476) | Send Message
     
    @Paulo Santos

     

    This has nothing to do with tobacco companies defaulting. In fact it is just the opposite. Lower MSA payments mean big tobacco is paying less out and keeping more of the profits. E cigs are not part of the MSA and they would pay out less as that makes up more of their revenue.

     

    Not surprisingly the states are over spending and borrowed for the future, what else is new.

     

    Yet another reason why big tobacco is not going away any time soon.
    24 Jun 2014, 09:15 AM Reply Like
  • Purple_K
    , contributor
    Comments (508) | Send Message
     
    Um, yeah, Paulo - normally you're quite coherent.

     

    Normally.
    24 Jun 2014, 02:30 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (32967) | Send Message
     
    Purple, I asked about there a bit below - the doubt is cleared now.
    24 Jun 2014, 02:42 PM Reply Like
  • doughave
    , contributor
    Comments (73) | Send Message
     
    These were likely municipal bond issues that were done based on a settlements, I was a bond trader in the 15 years ago when about every state did a bond issue linked to their settlement
    24 Jun 2014, 08:56 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (32967) | Send Message
     
    So how do they work?
    24 Jun 2014, 08:58 AM Reply Like
  • Matthew Mazurczak
    , contributor
    Comments (1476) | Send Message
     
    Big tobacco pays the states money based on cig volumes. As cig volumes go down, payments to states go down. This is being accelerated as e cigs make up more revenue and e cigs were not in MSA (didnt exist yet). States issued bonds upfront and are getting less $$ due to declining volumes.

     

    Silver lining is payments to states are based on volumes, NOT PRICE. Volumes go down but tobacco raises prices to compensate thus keeping more $$ that is not paid out to states.

     

    Who cares if tobacco bonds go bankrupt if your a tobacco investor.
    24 Jun 2014, 09:21 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (32967) | Send Message
     
    Ok, thanks.
    24 Jun 2014, 09:29 AM Reply Like
  • 27574893
    , contributor
    Comment (1) | Send Message
     
    All, these are not the bonds of tobacco companies being discussed here. These are the bonds issued by the states back in the late '90s / early 2000s backed by expected future payments from the tobacco companies to the states under the MSA. If the cigarette volume decline is higher than projected when the states issued those bonds, the cash flows the states will receive from the tobacco companies will be lower than projected at the time of the issuance of the bonds. Thus, the states will end up defaulting on these tobacco bonds.
    24 Jun 2014, 09:04 AM Reply Like
  • doc47
    , contributor
    Comments (1671) | Send Message
     
    Thanks for the details. Moody's really printed half a story here and should have noted that this has no impact on tobacco stocks.
    24 Jun 2014, 09:22 AM Reply Like
  • Brendan O'Boyle
    , contributor
    Comments (1283) | Send Message
     
    It wouldn't make much sense if MO 10-Yr debt traded at 3.6% if there was any significant chance of default.

     

    Very misleading headline.
    24 Jun 2014, 09:44 AM Reply Like
  • wward001
    , contributor
    Comments (49) | Send Message
     
    This effects the municipalities that issued them not the tobacco companies.
    24 Jun 2014, 09:05 AM Reply Like
  • wward001
    , contributor
    Comments (49) | Send Message
     
    The tobacco companies have settled with the states in 1998. The municipalities are at risk of default on the bonds they sold.
    24 Jun 2014, 09:27 AM Reply Like
  • jaketrent1234
    , contributor
    Comments (2) | Send Message
     
    MCIG is not a tobacco company, why are they mentioned?
    24 Jun 2014, 09:45 AM Reply Like
  • Raimo
    , contributor
    Comments (3) | Send Message
     
    We may be closer to cannabis legalization than many believe. RAI and MO will be set to buy out smaller companies because both are have lots of cash and have the machinery and logistics to pull it off.
    24 Jun 2014, 04:18 PM Reply Like
  • Raimo
    , contributor
    Comments (3) | Send Message
     
    RAI & MO are significantly down today (6/24) however, cannabis legalization is closer than many believe and both companies are positioned to make money.
    24 Jun 2014, 04:18 PM Reply Like
  • user27205633
    , contributor
    Comments (1019) | Send Message
     
    If cannabis were legalized would importation be allowed and would companies like PM be players?
    24 Jun 2014, 08:49 PM Reply Like
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