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Securitization of Government revenues
Social security receivables securitization in Italy:
Italy made global headlines with its proposal for securitization of delinquent social security contributions. The Italian government aimed at reducing its fiscal deficit by the transaction. Financial Times hailed the offer as one of the outstanding deals for the year 1999.
The proposal, announced around June 1999 finally went through in late 1999 and was a sell out among the investor fraternity. Rated AAA, the deal was backed by overcollateralisation of 10 times.
Details of the transaction are available in the various news items on our news page - see references on the country page for Italy - click here.
Tobacco bonds by New York City:
In the realm of government revenues securitization, the transaction that made headlines world-over was the securitization of tobacco settlement revenues by New York City. Anti-tobacco lobby cursed the deal, and Wall Street lapped it up.
The genesis of tobacco bonds lies in tobacco settlement. On Nov. 23, 1998, 46 states, Washington, D.C., and various U.S. territories entered into a master settlement agreement (MSA) with the four largest U.S tobacco manufacturers — Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., and Lorillard Tobacco Co. The four states not party to the MSA previously settled their claims against the tobacco companies. The MSA is a comprehensive agreement settling the states’ medical care cost claims against the tobacco industry in return for the industry making payments and taking certain other actions. The MSA payments include five initial payments through 2003 ranging from $2.4 billion–$2.7 billion per year, and annual payments beginning in 2000 and continuing in perpetuity in amounts ranging from $4.5 billion–$9.0 billion per year.
It is these payments that the various States, beneficiaries under the settlement, want to securitize.
Apart from New York City, Nassau and Westchester Counties have also securitized their tobacco settlement receivables.
See our news page for coverage of the tobacco bonds
Links on tobacco bonds:
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