Cezary Podkul is a reporter for ProPublica who writes about finance. Previously, he worked as a reporter at The Wall Street Journal and Reuters where he specialized in data-driven news stories. His work with Carrick Mollenkamp for Reuters’ Uneasy Money series was a finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. He has covered energy and commodities and the private equity industry, among other beats, after leaving investment banking in 2008 to pursue journalism.
Cezary earned a B.S. in economics from the Wharton School at the University of Pennsylvania in 2006 and is a 2011 alumnus of the Stabile Center for Investigative Journalism at Columbia Journalism School, where he won the Melvin Mencher Prize for Superior Reporting. He is fluent in Polish.
Wall Street pressed S&P, Moody’s and Fitch to assign more favorable credit ratings to their deals and bragged that the raters complied. Now many of the bonds are headed for default.
In 1999, New York counties had a choice to make. They had just been promised annual payments from tobacco companies as part of a national settlement to reimburse them for smoking-related health care costs. Like winning the lottery, they could either get small payments indefinitely -- or take a lump sum immediately by entering into "securitization" deals. Counties knew that these deals would mean less money in the long run, but bankers said they offered protection in case the payments shrank or went away. Now the cost is clear: millions pledged to investors that counties could have kept for themselves.
Users can see how interest rates and declining cigarette sales affect the bottom line for counties that borrowed against income from the landmark tobacco settlement.
An updated tally by ProPublica shows that tobacco bondholders are due $2.6 billion of the $6 billion in this year’s payouts to state and local governments from Big Tobacco.
After a bruising legal fight, tobacco companies agreed in 1998 to compensate 46 states, the District of Columbia and five U.S. territories for the health-related costs of smoking. Wall Street helped turn their annual payments into upfront cash by selling bonds to investors. Some of the deals included a form of high-risk debt, capital appreciation bonds, which obligated governments to pay out billions of their tobacco income in the future.
Politicians wanted upfront cash from a legal victory over Big Tobacco, and bankers happily obliged. The price? A handful of states promised to repay $64 billion on just $3 billion advanced.
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