HOUSE BILL No. 5048

July 6, 2005, Introduced by Reps. Huizenga and Dillon and referred to the Committee on Commerce.

A bill to create the Michigan tobacco settlement

securitization authority; to create funds and accounts; to provide

for the transfer of state assets to the authority; to authorize the

issuing of bonds and notes; to prescribe the powers and duties of

the authority; and to make an appropriation.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the

"Michigan tobacco settlement securitization authority act".

Sec. 2. As used in this act:

(a) "Authority" means the Michigan tobacco settlement

securitization authority created under section 3.

(b) "Board" means the board of directors of the authority.

the authority under this act.

(d) "Fund" or "tobacco settlement securitization fund" means

the tobacco settlement securitization fund established under

section 9.

(e) "Master settlement agreement" means that term as defined

in section 1 of 1999 PA 244, MCL 445.2051.

(f) "Person" means an individual, corporation, limited or

general partnership, association, joint venture, limited liability

company, or a governmental entity, including the state of Michigan.

(g) "Sale agreement" means 1 or more agreements authorized

under this act in which this state provides for the true sale of

TSRs to the authority.

(h) "Tobacco settlement receipts" means all tobacco settlement

payments that are received by this state that are required to be

made, pursuant to the terms of the master settlement agreement, by

tobacco manufacturers to this state and this state's rights to

receive those tobacco settlement payments.

(i) "TSRs" means the portion, which may include any or all, of

this state's tobacco settlement receipts sold to the authority

under this act and any sale agreement.

(j) "Unencumbered tobacco revenues" means that portion of the

TSRs that is not subject to the pledge of the applicable

resolution, trust agreement, or trust indenture by the authority to

the repayment of any bonds issued pursuant to the terms of the

applicable resolution, trust agreement, or trust indenture.

Sec. 3. (1) The Michigan tobacco settlement securitization

authority is created as a public body corporate and politic within

the department of treasury.

(2) Three fourths of all future tobacco settlement receipts

are transferred to the authority, for value, under the terms of the

sale agreement as determined by the state treasurer.

(3) Any sale of TSRs to the authority under a sale agreement

shall be treated as a true sale and absolute transfer of the

property transferred and not as a pledge or other security interest

for any borrowing. The characterization of the sale as an absolute

transfer by the participants shall not be negated or adversely

affected by the fact that only a portion of the state's tobacco

receipts is transferred, nor by the acquisition or retention by the

state of a residual interest.

(4) On and after the effective date of each sale of TSRs, this

state shall have no right, title, or interest in or to the TSRs

sold, and the TSRs sold shall be the property of the authority and

not of this state, and shall be owned, received, held, and

disbursed by the authority and not this state. On or before the

effective date of a sale described in this subsection, this state

through the attorney general shall notify the escrow agent under

the master settlement agreement that the TSRs have been sold to the

authority and irrevocably instruct the escrow agent that, after

that date, those TSRs are to be paid directly to the authority or

the trustee under the applicable resolution, trust agreement, or

trust indenture for the benefit of the owners of the bonds and

benefited parties until the bonds are no longer outstanding.

Thereafter, any officer or agent of this state who shall receive

any TSRs shall hold those TSRs in trust for the authority or the

trustee, as applicable, and shall promptly remit the TSRs to the

authority or the trustee, as applicable.

(5) The unencumbered tobacco revenues shall be distributed as

provided by law.

Sec. 4. The authority shall exercise its duties independently

of the state treasurer. The budgeting, procurement, and related

administrative functions of the authority shall be performed under

the direction and supervision of the state treasurer.

Sec. 5. (1) The authority shall exercise its duties through

its board of directors.

(2) The board shall be made up of the following members:

(a) The state treasurer.

(b) The president and CEO of the Michigan economic development

corporation.

business or financial fields appointed by the governor with the

advice and consent of the senate. The appointed members shall serve

for terms of 4 years. Of the 3 members first appointed, 1 shall be

appointed for an initial term of 1 year, 1 shall be appointed for

an initial term of 2 years, and 1 shall be appointed for an initial

term of 3 years. The appointed members shall serve until a

successor is appointed. A vacancy shall be filled for the balance

of the unexpired term in the same manner as the original

appointment.

(3) The chief executive officer or director of any state

department or agency who is a designated member of the board may

appoint a representative to serve in his or her absence.

(4) Members of the board may serve without compensation but

may receive reasonable reimbursement for necessary travel and

expenses incurred in the discharge of their duties.

(5) The governor shall designate 1 member of the board to

serve as its chairperson who shall serve at the pleasure of the

governor.

(6) A majority of the appointed and serving members of the

board shall constitute a quorum of the board for the transaction of

business. A member may participate in a meeting by the use of

amplified telephonic or video conferencing equipment. A member

participating by the use of video conferencing equipment shall be

considered to be present for purposes of a quorum. Actions of the

board shall be approved by a majority vote of the members present

at a meeting.

(7) A record or portion of a record, material, information, or

other data received, prepared, used, or retained by the authority

in connection with the securitization of tobacco settlement revenue

and issuance of tobacco bonds that relates to trade secrets,

commercial, financial, or proprietary information submitted by the

applicant, and which is requested in writing by the applicant and

acknowledged in writing by the president of the authority to be

confidential, is not subject to the freedom of information act,

1976 PA 442, MCL 15.231 to 15.246. As used in this subsection,

"trade secrets, commercial, financial, or proprietary information"

means information that has not been publicly disseminated or which

is unavailable from other sources, the release of which might cause

the applicant significant competitive harm.

(8) The authority may employ or contract for legal, financial,

and technical experts, and other officers, agents, and employees,

permanent and temporary, as the authority requires, and shall

determine their qualifications, duties, and compensation. The board

may delegate to 1 or more agents or employees those powers or

duties with such limitations as the board considers proper.

(9) The members of the board and officers and employees of the

authority are subject to 1968 PA 317, MCL 15.321 to 15.330, or 1968

PA 318, MCL 15.301 to 15.310.

(10) A member of the board or officer, employee, or agent of

the authority shall discharge the duties of his or her position in

a nonpartisan manner, with good faith, and with that degree of

diligence, care, and skill which an ordinarily prudent person would

exercise under similar circumstances in a like position. In

discharging the duties, a member of the board or an officer,

employee, or agent, when acting in good faith, may rely upon the

opinion of counsel for the authority, upon the report of an

independent appraiser selected with reasonable care by the board,

or upon financial statements of the authority represented to the

member of the board or officer, employee, or agent of the authority

to be correct by the president or the officer of the authority

having charge of its books or account, or stated in a written

report by a certified public accountant or firm of certified public

accountants fairly to reflect the financial condition of the

authority.

Sec. 6. The powers of the authority shall include all those

necessary to carry out and effectuate the purposes of this act,

including, but not limited to, all of the following:

(a) To create, operate, and maintain a tobacco settlement

securitization program.

(b) To borrow money and issue bonds to fund operations of the

authority and to fund this state.

person.

(d) To invest any money of the authority at the authority's

discretion, in any obligations determined proper by the authority,

and name and use depositories for its money.

(e) To procure insurance against any loss in connection the

property, assets, or activities of the authority.

(f) To sue and be sued, to have a seal, and to make, execute,

and deliver contracts, conveyances, and other instruments necessary

to the exercise of the authority's powers.

(g) To make and amend bylaws.

(h) To indemnify and procure insurance indemnifying any

members of the board of the authority from personal liability by

reason of their service as a board member.

(i) To employ and contract with individuals necessary for the

operation of the authority.

(j) For security for the payment of principal and interest of

any bonds, pledge all or any part of the TSRs or other assets.

(k) To do anything necessary or convenient to carry out its

purposes and exercise the powers expressly granted under this act.

Sec. 7. (1) A reserve capital account is created under the

jurisdiction and control of the authority and shall be administered

by the authority to secure bonds of the authority. The authority

shall credit to the reserve capital account tobacco settlement

receipts transferred by the state for the reserve capital account,

and any other money that is made available to the authority for the

purpose of the reserve capital account.

(2) In the resolution authorizing the issuance of bonds, the

authority may establish a capital reserve fund for the payment of

the principal and interest of bonds, for the purchase or redemption

of the bonds, or for the payment of a redemption premium required

to be paid when the bonds are redeemed before maturity. The

authority shall not use a capital reserve fund for an optional

purchase or optional redemption of bonds if the use would reduce

the total of the money in the capital reserve fund to less than the

capital reserve fund requirement established for the fund.

(3) In addition to, or in lieu of, depositing money in the

reserve capital account or in a capital reserve fund, the authority

may obtain or pledge letters of credit, insurance policies, surety

bonds, guarantees, or other security arrangements if the security

arrangements are approved by the state treasurer. The amount

available under letters of credit, insurance policies, surety

bonds, guarantees, or other security arrangements pledged to the

capital reserve fund shall be credited toward the capital reserve

fund requirement for the fund.

(4) Income or interest earned by the reserve capital account

may be transferred by the authority to other funds or accounts of

the authority.

(5) Income or interest earned by a capital reserve fund may be

transferred by the authority to other funds or accounts of the

authority to the extent that the transfer does not reduce the total

of the amount of money in the fund below the capital reserve fund

requirement for that fund.

Sec. 8. The authority shall accumulate in a capital reserve

fund an amount equal to the capital reserve fund requirement for

that fund. If at any time the amount of a capital reserve fund

falls below the capital reserve fund requirement for that fund, the

authority shall transfer from the reserve capital account to the

capital reserve fund an amount equal to the capital reserve fund

requirement. If a deficiency exists in more than 1 capital reserve

fund and the amount in the reserve capital account is not

sufficient to fully restore the capital reserve funds, the money in

the reserve capital account shall be allocated between the

deficient capital reserve funds pro rata according to the amounts

of the deficiencies. If at any time the reserve capital account has

been exhausted and the amount of the capital reserve fund is

insufficient to meet the capital reserve fund requirement, the

authority on or before September 1 shall certify to the governor

the amount necessary to restore the capital reserve fund to an

amount equal to the capital reserve fund requirement for that fund.

The governor shall include in his or her annual budget the amount

certified under this subsection by the authority.

Sec. 9. (1) The tobacco settlement securitization fund is

created under the jurisdiction and control of the authority.

(2) The authority shall credit to the fund any money

appropriated by the state for the fund and any other money made

available to the authority for the purpose of the fund.

Sec. 10. (1) The authority shall have power and is hereby

authorized from time to time to issue bonds in the principal amount

or amounts as the authority determines to be necessary to provide

sufficient funds for achieving its authorized purposes, consisting

of the purchase of all or a portion of this state's tobacco

receipts under this act and the payment of or provision for

financing costs.

(2) The authority may issue bonds as provided under this act

to do all of the following:

(a) Compensate this state for the transfer of the tobacco

settlement receipts to the authority as determined under the sale

agreement.

(b) Pay the interest on bonds of the authority.

(d) Make other expenditures of the authority necessary to

carry out the authority's duties under this act, including the

payment of the authority's operating expenses.

(3) The authority may issue bonds and refund bonds by the

issuance of new bonds, whether or not the bonds to be refunded have

matured. The refunding bonds shall be sold and the proceeds applied

to the purchase, redemption, or payment of the bonds to be

refunded. The authority may issue instruments separate from the

obligations described in this subsection that establish a

contractual right in the holder of the instrument to require

mandatory tender for purchase of the obligations to which the

instrument applies for a period of time and subject to provisions

as the authority may determine.

(4) Except as otherwise provided by the authority or this act,

every bond issue of the authority shall be a general obligation of

the authority payable out of revenues or money of the authority,

subject only to agreements with the holders of particular bonds

pledging any particular receipts or revenues.

(5) Whether or not bonds are of a form or character as to be

negotiable instruments, the bonds are negotiable instruments within

the meaning of the uniform commercial code, 1962 PA 174, MCL

440.1101 to 440.11102.

Sec. 11. (1) The bonds shall be authorized by resolution of

the authority and mature at the time provided in the resolution.

The bonds shall be in the form, bear interest at a rate or rates,

be in the denominations, carry registration privileges, be payable,

and be subject to the terms of redemption as provided in the

resolution.

(2) The bonds of the authority may be sold by the authority at

public or private sales at prices as the authority determines.

Sec. 12. A resolution relating to authorizing bonds may

contain any of the following provisions, which shall be a part of

the contract with the holders of the bonds:

(a) Pledging all or any part of the revenues of the authority,

and all or any part of the money received in payment of loans and

interest on loans, and other money received or to be received to

secure the payment of the bonds.

(b) Pledging all or any part of the assets of the authority,

including mortgages and obligations obtained by the authority in

connection with its programs, to secure the payment of the bonds.

government entity.

(d) The use and disposition of the gross income from contracts

and leases of the authority.

(e) The setting aside of reserves or sinking funds and the

regulation and disposition of reserves or sinking funds.

(f) Limitations on the purpose to which the proceeds of sale

of bonds may be applied and pledging proceeds to secure the payment

of the bonds.

(g) Limitations on the issuance of additional bonds, the terms

upon which additional bonds may be issued and secured, and the

refunding of outstanding or other bonds.

(h) The procedure, if any, by which the terms of any contract

with bondholders may be amended or abrogated, the amount of bonds

the holders of which shall consent to the amendment or abrogation,

and the manner in which the consent is to be given.

(i) Vesting in a trustee or trustees property, rights, powers,

and duties in trust as the authority may determine, which may

include any of the rights, powers, and duties of the trustee

appointed by the bondholders under this act and limiting or

abrogating the right of the bondholders to appoint a trustee under

this section or limiting the rights, powers, and duties of the

trustee.

(j) Establishing a contractual right to require mandatory

tender for purchase of the bonds in an instrument separate from the

bonds. The instrument may be issued or sold by the authority to

investors.

(k) Any other provision that may affect the security or

protection of the bonds.

(l) Delegating to an officer or other employee of the

authority, or an agent designated by the authority, for such period

of time as the authority determines, the power to cause the issue,

and sale and delivery, of the bonds within limits on those bonds

established by the authority as to any of the following:

(i) The form.

(ii) The maximum interest rate or rates.

(iii) The maturity date or dates.

(iv) The purchase price.

(v) The denominations.

(vi) The redemption premiums.

(vii) The nature of the security.

(viii) The selection of the applicable interest rate index.

(ix) Other terms and conditions with respect to issuance of the

bonds as the authority shall prescribe.

Sec. 13. (1) Any pledge made by the authority is valid and

binding from the date that the pledge is made.

(2) The money or property pledged and received by the

authority shall immediately be subject to the lien of the pledge

without any physical delivery or further act and the lien of the

pledge is valid and binding against all parties having claims in

tort, contract or otherwise against the authority, irrespective of

whether the parties have notice of the lien.

(3) The resolution or any other instrument by which a pledge

is created need not be recorded.

Sec. 14. The members of the board or any person executing the

bonds under this act are not liable personally on the bonds or

subject to any personal liability or accountability by reason of

the issuance of the bonds.

Sec. 15. Subject to any agreements with bondholders, the

authority has the power to use any funds available to purchase

bonds of the authority at a price determined by the authority.

Sec. 16. This state is not liable on bonds of the authority

and the bonds are not a debt of this state. The bonds shall contain

on their face a statement of the limitation contained under this

section.

Sec. 17. (1) The state pledges and agrees with the holders of

any bonds issued under this act that the state will not limit or

alter the rights vested in the authority to fulfill the terms of

any agreements made with the holders, or in any way impair the

rights and remedies of the holders until the bonds, together with

earned interest, with interest on any unpaid installments of

interest, and all costs and expenses in connection with any action

or proceeding by or on behalf of the holders, are fully met and

discharged. The authority is authorized to include this pledge and

agreement of the state in any agreement with the holders of bonds

under this act.

(2) The authority shall not voluntarily file for any

bankruptcy protection.

Sec. 18. (1) The authority may issue bonds which are expressly

stated not to be general obligations of the authority but which

constitute limited obligations of the authority payable solely from

and secured solely by the revenues, money, and property as the

authority may specify.

(2) The bonds designated as limited obligations under this

section shall not be payable from or secured by the reserve capital

account, and any reserve fund established for the limited

obligation bonds shall not constitute a capital reserve fund under

this act.

Sec. 19. If the authority defaults in the payment of principal

or interest of any bonds when due, whether at maturity or upon call

for redemption, and the default continues for a period of 30 days,

or if the authority fails or refuses to comply with this act, or

defaults in any agreement made with the holders of any bonds, the

holders of 25% in aggregate principal amount of the bonds then

outstanding may apply to the circuit court of Ingham county for the

appointment of a trustee to represent the holders of the bonds.

Sec. 20. (1) Money of the authority shall be held by the

authority and deposited in a financial institution approved by the

state treasurer any such financial institution may give security

for the deposits.

(2) The authority may, subject to the approval of the state

treasurer, contract with the holders of any of its bonds as to the

custody, collection, securing, investment, and payment of money of

the authority, of any money held in trust or otherwise for the

payment of bonds, and to carry out the contract. Money held in

trust or otherwise for the payment of bonds or in any way to secure

bonds and deposits of money may be secured in the same manner as

money of the authority.

(3) The authority may enter into an interest rate exchange or

swap, hedge, or similar agreement or agreements in connection with

the issuance of its bonds or in connection with its then

outstanding bonds.

Sec. 21. The bonds of the authority are securities in which

public officers and bodies of the state and municipalities and

municipal subdivisions, insurance companies and associations and

other persons carrying on an insurance business, banks, trust

companies, savings banks and savings associations, savings and loan

associations, investment companies, administrators, guardians,

executors, trustees and other fiduciaries, and any other person who

is now or may be authorized to invest in bonds or other obligations

of the state, may properly and legally invest funds, including

capital, in their control or belonging to them.

Sec. 22. The state covenants with the purchasers and all

subsequent holders and transferees of bonds issued by the

authority, in consideration of the acceptance of and payment for

the bonds, that the bonds of the authority, issued under this act

and the income from the bonds and all its fees, charges, gifts,

grants, revenues, receipts, and other money received or to be

received, pledged to pay or secure the payment of the bonds shall

at all times be free and exempt from all state, city, county, or

other taxation provided by the laws of the state, except for estate

and gift taxes and taxes on transfers.

Sec. 23. The property of the authority and its income and

operation are exempt from all taxation by the state or any of its

political subdivisions.