Strong demand for $1.46 billion in Illinois tobacco bonds will allow the deal to close Tuesday, one day earlier than expected.
The cash-strapped state, which structured the bond issue conservatively to make sure it sold easily, is pledging future payments from a settlement with tobacco companies to help pay off a backlog of bills by yearend.
state is pledging roughly twice the amount of cash flow needed to pay off the bonds over the next 17 years, which means cigarette consumption can decline 10% a year before cash flow gets close to the amount needed for debt service
state about $1.3 billion upfront after expenses and reserves, while shifting the risk that smoking will decline from the state to bondholders, with a very healthy cushion to minimize that risk.
“If smoking declines greater than 10%, then Illinois made a very smart move