Word: tobacco
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Dates: during 2000-2009
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...life, pro-family" funds. Based in Winter Park, Fla., and founded in 1994, Timothy has about $150 million in assets and roughly 12,000 shareholders. Ally will invest in no firm he feels is involved in promoting or financing abortion, pornography or "the homosexual agenda." He also shuns alcohol, tobacco and gaming stocks. (Military contractors are O.K.; even the Prince of Peace, says Ally, believed in self-defense...
...when an Illinois court left the Marlboro Man (Altria, formerly Philip Morris) gasping over the prospect of having to post a $12 billion bond before it could appeal an adverse verdict over its marketing of "light" cigarettes. Altria threatened Chapter 11, its corporate-bond ratings were slashed, and state-tobacco bonds reeled, losing 10% of their value. Virginia postponed a $767 million tobacco-bond sale--and that highlighted the real problem...
...exempt investors tend to be a conservative bunch. So they may be excused for choking on the sudden sickliness of so-called state tobacco bonds. These unusual securities, whose prices have bucked wildly, are a small part of the $1.8 trillion U.S. municipal-bond market. But they've infected other bonds, boosting volatility and hurting prices. Yet some bargains have emerged...
...hung up on the unique problems of tobacco bonds, which are state-issued debt backed by future payments of tobacco companies as part of a landmark 1998 liability settlement. States including California and New York have issued some $18 billion of these bonds to get their mitts on the tobacco loot now rather than wait to collect it in dribs and drabs over the next few decades. The bonds have always offered a higher yield than similarly rated munis--today, about 5.5% vs. 4.1%--because no taxing authority stands behind them, only a handful of private companies that...
States are in terrible financial shape. Investors are worried--especially with tobacco-bond income imperiled--that states won't be able to service their other bonds. Meanwhile, the Bush Administration's push to cut taxes on stock dividends could make tax-free bonds less attractive. As a result, yields on the best-quality tax-free munis have reached a rare parity with those of taxable Treasury bonds. In both cases you can get about 4% on a 10-year issue. A T-bond would have to yield 5.7% to generate the same after-tax income as a 4% muni...