Louisiana Commission Extends Time for Road Bonds

DALLAS — The Louisiana State Bond Commission yesterday approved the sale of up to $685 million of gasoline tax bonds as the state tries to negotiate lower swap-termination fees before the bonds go to market.

Proceeds from the bonds would finance the next phase of the state’s program of road construction known as Transportation Infrastructure Model for Economic Development, or TIMED.

The approval by the commission begins the constitutionally required 30-day notice period for the sale, but no details of negotiations about the financing plan were provided to the commissioners.

Michael Bridges, undersecretary for the Department of Transportation and Development, said the state needs more time to negotiate with all parties involved in the proposed bond sale.

“This will provide us with the flexibility to continue negotiating,” he said. “Instability in the market during the fall prevented the sale of these bonds in December.”

Bond proceeds must be available soon to prevent a shutdown in the road program, Bridges said.

“We need the money by May 1 because funds for our existing contracts will run out by June 1,” he said. “It is unacceptable to cancel contracts.”

Bond counsel Meredith Hathorn of Foley & Juddell LLP said the commission’s approval was a procedural matter.

“We don’t have a structure to recommend at this time,” she said. “This will give us time to negotiate the very best deal for the state. Everything is on the table.”

The official notice of the sale, to be published next week, must include details on the structure, according to Hathorn. Approval of the sale by the commission does not obligate the state to sell the bonds.

The sale was authorized by the State Bond Commission on Dec. 21, 2006, when it approved forward floating-to-fixed interest rate swap agreements with Morgan Keegan Financial Products, Merrill Lynch Capital Services, Citibank NA, and JPMorgan Chase Bank.

The state locked in a rate of 3.602% for the gasoline and fuel tax revenue bonds, which was 110 basis points lower than the 4.7569% true interest cost for the state’s November 2006 TIMED bond sale. In return, Louisiana would receive 75% of the London Interbank Offered Rate.

Hathorn said terminating the swaps in the current market would cost the state $141 million, although it has been as low as $119 million in recent days. She noted that while the road program needs only $485 million, the $685 million approval gives the state flexibility if it needs funds to pay to terminate the swap agreements.

“That’s just a random number,” she said. “We don’t expect to pay that much.”

Treasurer John Kennedy, chairman of the Bond Commission, said high-level negotiations on the swap are under way.

“Representatives of the speaker of the House, the president of the Senate, bond attorneys, and the Department of Transportation are in almost daily meetings,” he said. “We’re close to working something out.”

The state would be liable for the swap termination fees on May 1 even if the bonds were not sold, Kennedy said. “There is no way to get out of this,” he said. “We’ve got to work out an arrangement with the swap providers.”

In other action, the commission approved $50 million of revenue bonds for a chemical manufacturing facility in Calcasieu Parish. The bonds are Louisiana’s first from a total of $17 billion authorized by Congress for post-Hurricane Ike recovery efforts.

 

 

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Transportation industry
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