Rhode Island Defeats Attack on Tobacco-Backed Debt SaleChris Dolmetsch
Rhode Island defeated a legal challenge from OppenheimerFunds Inc. to its plan to sell $594 million of debt backed by payments from tobacco companies that agreed in 1998 to reimburse states for expenses associated with smoking-related illnesses.
Oppenheimer Funds in August sued the state’s Tobacco Settlement Financing Corp. in state court in Providence, saying the plan to divert at least $20 million from earlier bondholders is illegal because Rhode Island can’t change the order in which holders are paid.
Associate Justice Michael Silverstein yesterday granted a request to dismiss the suit. He said the state and the corporation followed proper procedure for issuance of the new bonds and obtained the appropriate approvals from holders.
Rhode Island created the corporation to raise money from tobacco companies’ 1998 accord with 46 states by selling bonds backed by future revenue from the settlement in exchange for upfront payments. The corporation sold bonds to investors in 2002 and in 2007, according to the complaint.
Kaitlyn Downing, a spokeswoman for OppenheimerFunds, and Amy Kempe, a spokeswoman for Attorney General Peter F. Kilmartin, didn’t immediately respond to voice-mail and e-mail messages seeking comment on the ruling.
The lawsuit is Oppenheimer Rochester High Yield Municipal Fund v. Tobacco Settlement Financing Corp., 14-3857, Rhode Island Superior Court, Providence.