These crazy tobacco settlement bonds were cobbled together in 2002 by then Governor of perpetually broke New Jersey - Jim McGreevey. They were used to fund a 3 billion dollar budget gap. But they were issued amidst allegations of corruption and pay-to-play via some unsavory Philadelphia folks. Apparently some big McGreevey donors who didn't ordinarily get bond work from NJ suddenly showed up as part of the deal. And the bonds required special dispensation from the NJ Supreme Court because NJ's Constitution prohibits borrowing to fund ongoing operations. It was a real cluster - f---
At the end of the day they raised 3 billion dollars but forfeited 100% of NJ's 250 to 300 million dollars a year in Tobacco Settlement money.
They got renegotiated in 2012. Maturity extended but NJ only had to part with 75% of the Tobacco settlement money.
THAT 25% that NJ renegotiated in in 2012 is the money thet are now using today to finally put this mess out of our misery.
Think of it this way. NJ is now back to McGreevey's original 100% of Tobacco Settlement money payout to the bondholders ... So NJ is no worse off than it was during the inital McGreevey deal. BUT they get 92 million dollars today (which they need 'cause they are still perpetually broke) AND they mature the deal in 2023 - years earlier than scheduled! Which means that they get to start pocketing some Tobacco money years ahead of the original McGreevey timetable and get paid 92 million to do it.
So...given that they were already saddled with this dead horse ... They got out pretty well.
Why not just default? Because if they defaulted the bondholders are entitled to keep collecting whatever Tobacco money there IS until they get paid in full!
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