Jewish World Review
http://www.jewishworldreview.com | (UPI) -- Philip Morris is warning a downstate Illinois judge could force it into bankruptcy, jeopardizing billions of dollars in tobacco settlement money set to go to cash-strapped states through 2025.
Circuit Judge Nicholas Byron earlier this month ordered the nation's biggest cigarette-maker to post a $12 billion appeal bond to cover a $10.1 billion judgment, plus interest, during the appeals process. The bond is more than twice the company's $5 billion operating income for last year.
"The judge knows we don't have $12 billion to begin with," Philip Morris attorney William S. Ohlemeyer said. "It's really an impossible situation."
The bond stems from a suit filed by smokers who accused the company of misleading them and others about the safety of low-tar cigarettes. Byron ordered the company, a division of Altria, to pay $7.1 billion in compensatory damages and $3 billion in punitive damages to the state. Illinois law requires that a company appealing a judgment post a bond equal to the damage award plus interest.
The issue is coming to a head as the Illinois Legislature considers a measure that would cap appeal bonds for tobacco companies at $25 million.
"No company can be expected to post a bond of $12 billion," former Gov. Jim Thompson wrote in a memo that made the rounds of the Capitol. "Philip Morris USA may have to take alternative legal steps to protect its assets during the appeal."
Illinois Attorney General Lisa Madigan said she thinks the bankruptcy threat is hollow and pledged to fight any attempt by the company to reduce the appeal bond.
Many states are counting on money from the tobacco settlement, reached in 1998, to plug huge budget gaps. The money was to be paid out through 2025.
Illinois, for example, received more than $300 million in such funds last year, half of which came from Philip Morris, and lawmakers are considering selling the rights to more than $3 billion due in coming years to raise some quick cash to help plug a $5 billion fiscal 2004 deficit.
Plaintiffs attorneys say Philip Morris could afford to put up the money in cash or use lines of credit. The company has until April 20 to post the bond or plaintiffs can begin seizing assets.
As a result of Byron's order, Standard & Poor's has warned it might lower Philip Morris' credit rating to junk status and said the company might have "to consider bankruptcy as an option."
Philip Morris is due to come up with $2.5 billion for the states on April 15. However, the company said in a letter last week to the state of Washington, which is due $60 million from that payment, it isn't certain it can come up with the money as a result of the Illinois situation.
Share of Altria Group Inc., which owns Philip Morris USA, were the Dow Jones industrial average's biggest loser, falling $2.34 on Monday to $29.79.
Appreciate this type of reporting? Why not sign-up for the daily JWR update. It's free. Just click here.
Comment by clicking here.