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It’s like something out of the real estate crash a few years ago. So back in the 90’s Big Tobacco settled with states to give them a piece of future revenues as penance for the damage they had already done and would continue to do. Those states sold bonds that would pay out as long as tobacco kept making money — and tobacco has always been a safe bet.

But the rapid introduction of a competing product to a space that never really had one before is putting these bonds at risk. Since the introduction of electronic cigarettes to the global market, tobacco sales declines — which had stalled in more recent years — are on a renewed path downward. Wells Fargo has even claimed that e-cigs may well surpass tobacco cigarette sales inside the next 10 years. That would take roughly $45 billion a year away from the revenues subject to the payment of those bonds.

The issue was originally covered by Reuters and has been reported by a number of outlets since.

According to a money manager interviewed by the Wall Street Journal, the first bond defaults could be only about 5 years away. Many see the problem really hitting the market around 2020.

Selling tobacco bonds has been a questionable option for states for some time. Although the bonds technically transfer risk to the buyers, many have secondary pledge backing from the states that sell them. This means that if the tobacco industry implodes and can’t pay, the state loses the income from the tobacco companies and still has to keep paying for the bonds. Many believe this can create a pretty significant perverse incentive for states to support and protect tobacco companies from legal and competitive risk.

Even before the introduction of electronic cigarettes, declining cigarette sales where causing some bonds to default. Ratings organizations have even downgraded the longest-term bonds to a junk rating. With e-cigs offering a non-tobacco alternative that appears 99% less harmful and easily half the expense (often less), tobacco cigarette sales are at the tipping point of a near complete free fall.