LANSING – Securitization of the Michigan’s tobacco settlement revenue for the 21st Century Jobs Fund was a success, an official for the authority overseeing the fund told a joint legislative oversight committee on Thursday.

The state sold $1.044 billion in future state tobacco revenue for the bonds, which banked $490 million for the fund, said Jeannie Vanda, financial advisor for Public Financial Management. The bonds are based on a 21-year payback schedule.

Those bonds were broken up into three areas, with the bulk of the future revenue going into traditional fixed rate, taxable bonds ($363 million). The rest was divided into indexed floating rate bonds and capital appreciation bonds.

Vanda said the decision to break the money up in that way was made because of the need for flexibility between the tax exempt and taxable, the schedule for payback needing to be aggressive and the market deciding on bonds that go beyond the normal five year schedule.

While the state will get a good return on its investment, expected to be at 69 cents on the dollar, she did not know how that compares to what other states have done with tobacco bonds.

In the middle of this, the market is unsure of the future of tobacco revenues to the state, she said, as tobacco companies are challenging the need for reduced payments to the state due to their loss of market share. While the rating for bonds used with tobacco monies might be some of the lowest ratings, they are still at investment grade, Vanda said.

The state brought in several first time bond buyers, she said. Sen. Judson Gilbert (R-Algonac) asked whether the state had met the legislation’s intention in having an emphasis on using Michigan companies, to which Vanda said she believed the state had met that requirement.

Banks such as Comerica, Fifth Third and La Salle were included in that analysis she said because of those companies’ presence in Michigan.

Committee co-Chair Rep. Bill Huizenga (R-Zeeland) also questioned how much Bear Sterns, which received some controversy as it was selected as underwriter for the 21st Century Jobs Fund because of it had been fined $250 million by the Securities and Exchange Commission for late trading and marketing violations, dealt with the bonds. Vanda said that typically firms like Bear Sterns handle 70 percent and that was about the same as what occurred in the state’s transaction.

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