AMERICANS are kicking their smoking habit at a healthy clip. It is not just the quitters who are experiencing withdrawal symptoms. Investors who bought the rights to compensation payments from tobacco firms following a king-size legal settlement are also feeling irritable.
Tobacco-settlement bonds are a tribute both to the inventiveness of bankers and the childlike impatience of politicians. In 1998 the big cigarette manufacturers in America agreed to make annual payments, projected at over $200 billion in the first 25 years alone, to cover 46 states’ historical and future health-care costs. In exchange, they were shielded from future lawsuits. Instead of waiting for the cheques to arrive each year, some states packaged the cashflows into bonds and sold them off to investors (including hedge funds) that were keen on risky assets.
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