DALLAS — Louisiana will avoid more than $110 million in swap termination penalties on two series of second-lien gas and fuels tax bonds with a $303.1 million refunding that received final approval Tuesday from the State Bond Commission.
The negotiated sale is slated for pricing May 16. JPMorgan is lead underwriter on the issue.
The refunding was necessary because a hard put on the bonds would require the state to buy back the bonds and pay termination fees on floating to fixed swaps on the debt, said Treasurer John N. Kennedy, who chairs the Bond Commission.
“We’re rolling this debt over because of the hard put,” Kennedy said.
The refunding of the bonds issued in 2009 and 2010 will extend the mandatory call dates to 2017 and 2018.
The variable-rate bonds being refunded will be replaced with new variable-rate debt, said Whit Kling, director of the Bond Commission.
The refunding bonds will retain the existing swap arrangements, he said.
The swaps are currently based on a combination of SIFMA and LIBOR rates, Kling said, but the interest rates paid and received on the refunding bonds will be based solely on LIBOR.
“The change to a LIBOR rate will eliminate the state’s basis risk,” Kling said. “We expect the refunding will allow the same or a slight lower effective interest rate as the current bonds.”
In addition to the $303 million of gas and fuels tax bonds being refunded, the state has another $182 million of the bonds outstanding with associated swaps.
Those remaining bonds are expected to be refunded before the end of 2013 to take out the swaps, he said. Swap termination penalties on the remaining debt are currently estimated at $77 million.
Louisiana currently has $1.85 billion of outstanding first-lien gas and fuels tax revenue bonds and $880 million of second-lien debt.
Louisiana’s second-lien gas and fuels tax revenue bonds are rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s and AA-minus by Fitch.
The Commission accepted a true interest cost bid of 3.251411% from Bank of America Merrill Lynch was accepted on $130.7 million of tax-exempt state general obligation bonds at Tuesday’s competitive sale.
A taxable tranche of $169.3 million of state GOs was awarded to Raymond James at a true interest cost of 2.109874%.
The timing was good for the GO sale, said Renee Boicourt of Lamont Financial Services Corp., financial advisor to the Bond Commission.
“It turned out to be a good week to go to market,” she said at Tuesday’s special meeting. “We didn’t have a lot of competition. There was strong interest in the deal.”
The tranche was structured to provide early payout on the taxable debt, she said, with longer maturities on the tax-exempt bonds.
The taxable series included $100 million of proceeds for highway projects of the Department of Transportation and Development, Kling said.
The state would not normally issue taxable debt for those projects, he said, but delays in issuing GO bonds resulting in some of the work exceeding the three-year limit on funding with tax-exempt proceeds.
“The solution is more regularly scheduled sales,” he said.
