US - San Diego Mayor Jerry Sanders has proposed using tobacco settlement money to reduce the city's estimated US$1.4bn debt.
Sanders will on Monday ask the city council to conceptually approve his plan to leverage $10.3m annually in settlement revenues as securitisation for approximately $100m in cash that would be contributed to the pension fund.
The Mayor will ask the City Council to approve the sale of publicly marketed bonds known as a tobacco bond issuance vehicle. Due to the financial market’s confidence in the predictability of tobacco revenues, this is an exception to the rule of San Diego not having access to public market financing.
Sanders said in his proposal that cities and counties across California had previously used tobacco money as securitisation for a diverse list of projects.
Should the Council agree with the concept, Sanders would return to the council in April or May with a detailed plan.
The securitisation transaction would not require any additional credit backing, as it would not require disclosure of any city financial information and relies solely on the sale of the revenues and the pledge of revenues until the bonds were paid off.
“The bonds are paid off, there is no general fund recourse, and the transaction will not affect the city’s existing debt levels,” Sanders said in the proposal.
As part of the strategy to pay down the pension obligation, Sanders said his financial reform team was considering other options to help reduce the debt, and added this represented “the start of that plan”.
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