DALLAS - The Louisiana State Bond Commission yesterday extended the term of a swap agreement on a planned issue of $485 million of gasoline and fuel-tax bonds from Dec. 1 until May 1, 2009, in an effort to avoid a swap termination payment of more than $100 million.
The commissioners gave the staff authority to enter into negotiations with the swap counterparties and approved a cooperative agreement that calls for the state to make the swap termination payment if gasoline and fuel tax revenues still are not sufficient to support the bonds. However, the state hopes to issue the bonds by May 1 to avoid the payment entirely.
"We wanted to keep the swap active because the rate is very attractive," said Freda Johnson of Government Finance Associates Inc., the commission's financial adviser.
"When the original agreement was reached in 2006, we anticipated issuing senior auction-rate debt enhanced with bond insurance," she said. "We are now looking at subordinated variable-rate debt backed with a line of credit."
The bond commission approved a forward purchase delivery contract in December 2006 with underwriters Morgan Keegan & Co. and Citi for the bonds, which included a forward floating-to-fixed interest rate swap agreement that locked in a rate of 3.602% for the 2008 bonds.
Morgan Keegan Financial Products was awarded 50% of the swap, with 25% for Merrill Lynch Capital Services and 12.5% each to Citibank NA and JPMorgan Chase Bank.
The road bonds are the next-to-last tranche from Louisiana's $4.9 billion Transportation Infrastructure Model for Economic Development program. The financing plan for the program, which is supported by four cents of Louisiana's 20-cent-per-gallon gasoline tax, called for $485 million of the bonds to be issued no later than Dec. 1, with a final $500 million issue in 2010 to complete the TIMED projects.
Whit Kling Jr., director of the Bond Commission, said the state couldn't issue the bonds in 2008 as senior debt because gasoline tax revenues currently do not provide the debt service coverage required.
Kling also said the deal had to be pushed back because the state had found it impossible to obtain a letter of credit to replace the bond insurance in the original contract. CIFG Assurance NA had agreed to insure $362 million of the bonds, with the remainder covered by XL Capital Assurance Inc., now Syncora Guarantee Inc. Both insurers have lost their triple-A ratings during the ongoing credit crunch.
If the bonds cannot be sold by May 1, Kling said, the state will run out of funds to pay for highway and bridge projects that are already under construction.
"This extension gives us time," he said. "It does not give us additional dollars for this program. If these bonds are not sold, the TIMED program will run out of funds by June 2009."
The swap termination payment was at $24 million in October when the Bond Commission approved the delay of the sale until 2009, Kling said.
"A couple of weeks ago it was $30 million," he said. "Earlier this week it was $72 million, and on Wednesday it was $92 million. As of this morning, it was over $100 million."
In other action, the commission deferred action on a request to increase the size of an issue of the lease revenue bonds by Louisiana Local Government Environmental Facilities and Community Development Authority for the benefit of the state's community college and technical school system from $185 million to $200 million.
John Mayeaux of Sisung Securities Corp., financial adviser to the college system, said the increase was a response to market conditions.
"This is market driven," he said. "The market wants higher yields so we will have to provide an original issue discount."
The commission directed the staff to determine how the bonds could be issued as general obligation debt, and if the bonds had to be sold in a single tranche.
