Friday, February 7, 2014

PIMCO Tastes Good Like a Cigarette Should

Barron's article on tobacco munis,

"One quirky feature of tobacco munis is that issuers can't seek bankruptcy protection. Investors are entitled to each bond's earmarked MSA payments, whatever they turn out to be. Interest payments could come up short, and principal repayment might be delayed or not made in full. 'The bonds are generally appropriately priced, given cigarette consumption projections. There may be a shortfall, depending on the bond's structure,' says Tom Metzold, co-director of muni investments for Eaton Vance, which owns tobacco munis.

In its most recent semiannual report, managers of the Oppenheimer Rochester National Municipals Fund (ORNAX) wrote that 'carefully researched MSA-backed bonds are fundamentally sound, and...will continue to provide high levels of tax-free income to the long-term benefit of our yield-seeking investors.' The fund has 19% of its $5.6 billion in assets in tobacco munis, its largest sector-weighting. Pimco could be the biggest holder of such munis. The Total Return fund owns 25% of the Buckeye 5.875% issue."
So, PIMCO is a silent partner in all cigarette transactions.

It's amazing how cigarettes have gone out of style in the past ~50 years.

No comments: