Scoring the Latest Tobacco Bond Bailout: Investors $10, Taxpayers $1

by Cezary Podkul,  ProPublica

In our story last month about a tobacco bond bailout by New York’s Niagara County, we noted that another county, Chautauqua, also had a deal in the works involving its distressed bonds.

Now the deal is done, and it seems Chautauqua fared even worse than its nearby upstate neighbor.

Oppenheimer Funds, the New York mutual fund manager, got $5.9 million to cash out of a speculative Chautauqua tobacco bond issue it had recently valued at only about a fourth of that amount. The firm declined to comment on the deal.

County taxpayers got $600,000, or about one-tenth of Oppenheimer’s take. Just the fees necessary to get the deal done – $1.2 million paid to lawyers, bankers and others – were more than double Chautauqua’s take.

“It is rare to see the issuer getting so little compared to the cost of issuance,” said Matt Fabian, managing director at Municipal Market Advisors, a Massachusetts-based research firm.

In Niagara’s recent tobacco bond bailout, the county got to keep about $2 million, a little less than a third of Oppenheimer’s take of about $6.9 million. As with the Chautauqua deal, that was about four times value Oppenheimer reported on its books, according to mutual fund data provider Morningstar.

What’s going on? Read the entire story.

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