Ground Floor: In London last week for a trade dinner I was completely taken aback when the guest sitting next to me lit up a cigarette between the starter and the main course and proceeded to puff away merrily.

I looked at him in total astonishment until I remembered that there isn't a smoking ban in UK restaurants and he was perfectly entitled to smoke whenever he wanted - even between courses which I personally think is the most revolting time anyone could choose.

So I said nothing and tried not to inhale.

The following morning my clothes reeked of the once familiar but now forgotten smell of stale smoke, my eyes were gritty and I had a nagging headache.

Nobody seriously believes that smoking is not harmful to your health. But the industry is a massive employer. It has been hugely profitable. And nobody likes to see profits disappearing in a non-puff of smoke.

In the US, tobacco companies have long been engaged in a battle with individual states in relation to smoking-related diseases. The industry itself continues to deny any relationship between smoking and lung cancer, nicotine and addiction, but it still signed a $206 billion (€163.07 billion) settlement (the Master Settlement Agreement) with 46 states seven years ago in order to buy immunity from lawsuits aimed at getting money out of them to help treat smoking-related illnesses.

From the point of view of the states concerned, this was a way of getting money up front which eased the burden of health spending and also left them with funding to shore up budget deficits. As a result of the settlements, many of the states then securitised this future income by issuing bonds which were backed by the expected revenue from the tobacco companies. It all seemed like a good idea at the time. In fact, it was a pretty good idea but now the tobacco giants are disputing some of the payments.

Last year the three biggest companies, Philip Morris, Lorillard and Reynolds American, paid $6.2 billion to individual states but at the same time the states were meant to pass and enforce laws which meant that new entrants to the market also made payments into an escrow account which might cover their future liabilities.

The idea was that this would stop smaller companies from taking advantage of the position of the larger ones.

If the big companies could prove that by not enforcing the laws properly their market share was being reduced, they could reduce their annual payments.

The tobacco companies who were signatories to the Master Settlement Agreement now claim that their market share has dropped from 99.6 per cent of the market (practically a monopoly!) to 91.9 per cent.

Their cigarettes are, on average, almost 43c dearer than their smaller rivals because they increased the costs of a packet to cover the payments.

However the state officials claim that simply citing a loss in market share isn't enough - the clause also requires that the states be negligent in supervising the settlement.

Therefore an independent firm has to decide whether the loss is due to disadvantages caused by the settlement agreement which covers issues like restrictions on outdoor advertising, brand sponsorship, free samples and merchandising.

The states are now in a situation where they have issued a total of around $20 billion bonds based on a revenue stream which may be insecure.

The bondholders are the ones who have to worry because the outcome could be a default on the bond payments, a prospect which nobody wants to contemplate.

However, the doomsday scenario is unlikely in most cases because the majority of tobacco bonds aren't backed solely by revenue from the tobacco companies, many states having decided that it was easier to attract bondholders if they also undertook to make up any shortfall in payment from the tobacco companies themselves. Nevertheless, decreased revenue from the tobacco giants means more of a shortfall which needs to be made up by the states and more money which they have to raise from other sources (higher taxes anyone?).

Yields on tobacco bonds are around 6 per cent which is significantly lower than the 8 per cent level they traded at a couple of years ago when there were other concerns about potential defaults. The state of Virginia recently issued $448 million worth of bonds which are backed only by tobacco revenue and not by any other sources. Eight-year bonds yielded around 4.7 per cent while 30-year+ paper traded at 5.78 per cent. Which would lead you to suppose that bondholders are not too concerned that, despite the restrictions on advertising and despite the efforts of governments to encourage people to cut back on smoking, sales will continue to fall.

Predictions have been made that consumption of cigarettes will decline steadily. Twenty years ago, US smokers got through 640 billion cigarettes a year. Last year it was around 400 billion and analysts expect that number to fall to around 220 billion in 30 years' time when the long-dated Virginia bonds mature.

The state of Virginia has its money now. The bondholders are the ones who are taking all the risk. But then, if many of them are smokers, they're used to that anyway.

Meantime, I guess, the tobacco companies are glad that Micheál Martin doesn't spend too much of his time stomping around Virginia telling them what a great thing the ban on smoking in the workplace is.