Securitization
In the ten years following the settlement, many state and local governments have opted to sell so-called tobacco bonds. They are a form of securitization. In many cases the bonds permit state and local governments to transfer the risk of declines in future master settlement agreement payments to bondholders. In some cases, however, the bonds are backed by secondary pledges of state or local revenues, which creates what some see as a perverse incentive to support the tobacco industry, on whom they are now dependent for future payments against this debt.
Tobacco revenue has fallen more quickly that projected when the securities were created, leading to technical defaults in some states. Some analysts predict that many of the bonds will default entirely. Many of the longer-term bonds have been downgraded to junk ratings.
Read more about this topic: Tobacco Master Settlement Agreement