Bonds issued by the Nassau County Tobacco Settlement Corp. failed to make a debt payment on June 1, marking the first payment default in the tobacco bond sector, according to Bloomberg, as the high-yield tobacco bond market comes under pressure from declining cigarette consumption. The county’s most recent audit warned of substantial doubt about the NCTSC’s ability to continue as a going concern amid insufficient settlement revenues, with survival dependent on refinancing or restructuring the debt. More than $10 million of NCTSC bonds traded this week at an all-time low of 52 cents; the bonds, issued in 2006, total $510 million including interest, and at a November board meeting an official said major banks had advised there were no opportunities for refunding or refinancing. The missed payment marked the final maturity for the 2006 Series A bonds. As James Pruskowski of Hennion & Walsh put it, a missed principal payment is “not a technicality” but a harder signal that the cash-flow waterfall is not covering what it was structured to cover.
The financing was part of a wave of deals in which states securitized payments from the 1998 Master Settlement Agreement, under which tobacco companies pay states annually by April 15 based largely on prior-year cigarette sales volume. This April’s payment to Nassau was only $14.7 million, against a June 1 principal payment of $35.9 million and interest of $8.3 million. MMA noted that because payments continue in perpetuity, interest will likely keep being paid and principal will eventually be paid, though later than expected. The tobacco sector was among the worst-performing high-yield segments in May and has lagged for months; MMA’s Kevin McGuigan noted spreads on nonrated Buckeye bonds had widened more than 80 basis points since June 2025, and the Nassau miss could spook investors further.
New York: First-Ever Default for Municipal Tobacco Bond Market
