KMAX: News of the West

Philip Morris makes tobacco settlement payment

By JESSICA BRICE
Associated Press Writer

SACRAMENTO (AP) Philip Morris USA has paid California and other states billions of dollars as part of a national tobacco settlement agreement following weeks of speculation over whether the nation's largest cigarette maker would be able to stay afloat.

Tuesday's payments came the day after an Illinois judge cut in half the bond amount that Philip Morris needs to post if it wants to appeal a $10.2 billion lawsuit. The company had argued that the original bond of $12 billion would have pushed it into bankruptcy.

State officials hope the money will pave the way for the immediate sale of $2.3 billion in tobacco-backed bonds money the California needs to pay for services already in this year's budget.

The bonds, which are tied to future tobacco settlement payments, were set to hit the market Tuesday, but state officials pulled out of the deal amid worries that investors would consider the buy too risky.

As part of a 1998 national lawsuit settlement, Philip Morris and other tobacco companies agreed to pay $206 billion to states over 25 years. This year's payment to California totals about $656 million, with Philip Morris responsible for about half.

Philip Morris almost missed this year's payment, however, after the company was hit with a $10.2 billion ruling in a lawsuit over its light cigarettes. The company was ordered to post a $12 billion bond before it could appeal the case. But after pressure from at least three-dozen attorneys general from cash-strapped states, Illinois Judge Nicholas Byron cut the bond in half.

Philip Morris spokesman Brendan McCormick called the decision an ``onerous but viable solution.''

``The reduction in the size of the bond provided us with the certainty we need to make the payment on schedule,'' he said.

The company's financial troubles, however, lasted long enough to ripple through California's finances, forcing the state to temporarily abandon plans to sell $2.3 billion worth of tobacco-backed bonds. State Controller Steve Westly has warned that without the bond money, the state will run low on money by August.

It's unclear when the state will try to sell the bonds again, said Mitch Benson, spokesman for the state Treasurer Phil Angelides.

Meanwhile, the state attorney general's office is preparing to fight three small tobacco companies that missed their payments, said spokesman Tom Dresslar.

Liggett Group, Inc. and Vector Tobacco, Co., both owned by Miami-based Vector Group, as well as Commonwealth Brands, Inc., based in Bowling Green, Ky., owe California about $3 million this year, Dresslar said.

Officials at Commonwealth were not available for comment Tuesday and a spokeswoman from the Vector Group did not return calls from The Associated Press.

On the Net:

Philip Morris USA: http://www.philipmorrisusa.com

(