Illinois is in the news for a tobacco bond offering this week. This are the first tobacco bonds issued in the last 2 1/2 years. Illinois has one of the lowest credit ratings of all 50 states. It needs money from the offering to pay past-due bills to vendors! Sounds like a pretty bad investment for us.
Tobacco bonds are backed by payments made to the state government by tobacco companies. These statements are based on projected cigarette sales. The problem is that cigarette consumption keeps dropping, making the original projections way out of whack. This leads to fears that defaults could occur.
The offering actually went pretty well. The deal was marketed conservatively and garnered a lot of retail investor support.