Big Tobacco pays states $6.5 billion under accord

Reuters News
Posted: Apr 16, 2012 1:53 PM
Big Tobacco pays states $6.5 billion under accord

(Reuters) - Three of the biggest U.S. tobacco companies said on Monday they have paid a total of $6.5 billion this year to U.S. states under a 1998 national accord that obliged companies to help cover the health bills of ailing smokers.

Altria's Philip Morris paid $3.5 billion, said spokesman Steve Callahan. But the Marlboro-maker, which makes the biggest payments, is disputing $206 million of that sum, and has put that money in escrow.

The national settlement that involved most states is designed to level the playing field between companies that signed it and those that did not. So the signing companies' payments are reduced by the amount of market share they lost to firms that did not participate in the settlement.

But the tobacco companies for years have argued the reductions were not big enough, and the major companies are putting the sums they dispute into escrow.

Reynolds American Inc, which makes Camels, paid $1.9 billion and has put the $469 million that it disputes into escrow, said spokesman Bryan Hatchell.

Bob Bannon, a spokesman for Lorillard, known for its Newport brand, said the company has paid $1.1 billion and is disputing $98 million of that amount, which it has put in escrow.

States, counties and cities have sold billions of dollars of bonds backed by the over $200 billion in payments that cigarette-makers agreed to make over time.

But from 2003 to 2011, cigarette-makers have disputed a total of more than $7.7 billion in payments. This cuts the cash available to repay the tobacco bonds, which are a substantial component of the U.S. municipal market's high-yield sector.

A panel of three arbitrators charged with resolving the disputes between the tobacco companies and the states plans to meet Monday in Chicago. Its hearings are not expected to end until June 2013.

(Reporting By Joan Gralla; Editing by Tim Dobbyn)