DALLAS — Louisiana will sell $325 million of general obligation bonds next week as the state enters the new-money market for the first time in three years.
The competitive deal, set for Tuesday, consists of $200 million of new-money debt for state capital-outlay projects and $124.8 million of refunding bonds.
The sale comes less than three weeks after Fitch Ratings and Standard & Poor’s raised their ratings on Louisiana’s GO debt to AA-minus from A.
Moody’s Investors Service retained its A1 rating on Louisiana’s GO debt, but raised the outlook to positive from stable.
Fitch and Standard & Poor’s also increased the rating for the state’s appropriations-backed debt to A-plus from A. Moody’s rates that debt A2.
Since 2008, Fitch has upgraded Louisiana’s rating by two notches. Oregon is the only other state Fitch raised over the same period. Five states have had their ratings lowered.
Louisiana is the only state Moody’s has upgraded since the national recession began. It has downgraded five statesin that period.
Louisiana is one of four states that Standard & Poor’s has upgraded in 2009. The agency has downgraded two states this year.
Government Finance Associates Inc. is the state’s financial adviser. Foley & Juddell LLC and Phelps Dunbar LLP are co-bond counsel.
Freda Johnson, president of Government Finance Associates, said the last time the state went to the market to finance capital outlay projects was in September 2006, when it sold $500 million of GOs.
“The state didn’t sell bonds in 2007 and 2008, because there was still federal hurricane recovery money available,” she said.
Louisiana had considered issuing a total of $500 million of new-money GOs this month. Instead, Johnson said, the state will sell $200 million now and another $300 million in the first quarter of 2010.
“We advised that the sale be split,” she said. “The state hadn’t been in the market for a long time, and it did not need the entire $500 million now. We wanted to do the refunding at this time.”
Johnson said she expects strong interest from retail for the refunding bonds. Proceeds will be used to refund debt issued in 1998.
“The refunding bonds should be a very strong retail product,” she said. “They are for very short terms, and the bonds are not callable. In this market, retail customers are wary of having their money tied up long term, and these bonds should fit the need for short-term debt.”
Johnson expects the state to realize a savings of more than 5% with the refunding.
The state can decide on the day of the sale to reduce or expand the refunding tranche total by up to 10% of the principal, Johnson said. That decision must be made by 4 p.m. Central Daylight Time.
“That’s very common with refunding issues,” she said. “The state likes level debt service, and that will depend on the interest rates in the market on that day.”
Several issuers have been forced to pull their refundings in recent days as interest rates rose.
Louisiana’s GOs should be well received by investors next week, Johnson said.
“This should be a very good sale,” she said. “The state’s credit ratings haven’t been this high in years, and it looks like there will be more demand than supply next week. This week is very active with some big issues, but there are few sales scheduled next week. All that should combine to give us a very good sale on Tuesday.”
Secretary of Administration Angèle Davis said the upgrades should save Louisiana taxpayers millions of dollars in debt service.
“We expect a great set of sales,” she said. We have not been in the market for a while with a new-money issue, so we believe supply and demand will work to our advantage, as will Louisiana’s recent rating upgrades,” Davis said. “And we also believe that our proactive initiatives to streamline state government and reform our budget process will continue to keep our fiscal status in a strong position.”
Davis is Gov. Bobby Jindal’s main budget adviser and a member of the State Bond Commission.
The amount of GOs the state can issue is limited by the state constitution. Debt service on the net state tax-supported debt can be no more than 6% of the total annual revenues as forecast by the Revenue Estimating Conference.
Davis said officils expect to issue $300 million of GOs in early 2010, $400 million in fiscal 2012, and then $300 million every other year.
Louisiana will issue $500 million of fuel tax revenue bonds in fiscal 2011 for highway projects.
Louisiana’s net tax-supported debt was $9.97 billion on June 30, including $2.8 billion of GOs, $5.3 billion of revenue debt supported by fuel taxes, and $1.7 billion of debt supported by annual appropriations by the Legislature.
Treasurer John Kennedy said the improved credit assessments are the result of information provided to analysts from Fitch, Standard & Poor’s, and Moody’s during candid meetings in Baton Rouge. The upgrades came despite a decline in revenue because the analysts were impressed with the state’s procedures for dealing with potential shortfalls, he said.
“We talked very frankly with the rating agencies,” Kennedy said. “We told them exactly where we are with the revenue deficit this year, and where we will be next year, and the next. We outlined the steps that the Legislature and the administration are taking to deal with these situations, and deal with them early.”
The Legislature adopted a balanced general fund budget for fiscal 2010 of $8.06 billion that dealt with a $1.3 billion drop in revenues without raising taxes. The balance was achieved through $721 million in spending cuts, $666 million in federal stimulus funds, and $86.2 million from the state’s budget stabilization fund.
The latest report from the General Estimating Conference expects revenues to rebound slightly in fiscal 2011, up $154.8 million to $8.2 billion.
Kennedy said most of the state has recovered from the devastation caused by hurricanes Katrina and Rita in 2005.
“New Orleans and St. Bernard Parish are still in a recovery mode, but the rest of the state is doing well,” the treasurer said.
“The recovery in southern Louisiana is not going as fast as we had hoped it would. But Louisiana has been very blessed,” Kennedy said. “While we may not experience the economic booms that many states do, that means we don’t have the busts, either.”
