The Louisiana Public Facilities Authority has entered into a closing agreement with the Internal Revenue Service over a $50 million lease-to-own deal, under which it has agreed to pay $50,000 in return for the IRS' maintaining the tax-exempt status of the bonds, an LPFA official said yesterday.
In a material event notice filed Tuesday with EMMA, the LPFA said that the IRS had closed an examination of the bonds without any changes to their exempt status, but the notice made no mention of the closing agreement.
Asked about the notice, James Parks 3d, the LPFA's president and chief executive officer, said the examination was closed after a closing agreement was reached and that the authority paid $50,000 under that agreement.
The LPFA is the latest issuer to settle a tax dispute with the IRS over lease-to-own bond deals, which have spurred allegations of bid-rigging, arbitrage problems and other violations of the tax laws and rules.
The authority's bonds, which matured on June 1, 2008 according to the notice, were used for the authority's LouLease program, a single-family homeownership lease-purchase program.
Societe Generale, a French investment bank with several branches in the U.S., served as liquidity provider and forward purchaser in the deal, according to bond documents. CDR Financial Products Inc., an investment advisory firm in Beverly Hills, Calif., was the broker for the guaranteed investment contract. But Parks said the deal was structured to ensure SocGen did not obtain the GIC.
Foley & Judell LLP and David Bell, both of New Orleans, served as co-bond counsel on the deal. The bonds were underwritten by Morgan Keegan & Co. and First Commonwealth Securities Corp. Kutak Rock LLP was underwriter's counsel.
The closing agreement concludes a three-year audit, which the IRS began on Jan. 30, 2006.
The "lease-to-own" structure has come under heavy scrutiny by the IRS in recent years and has led to the audits of 21 transactions with a total of about $1 billion of bonds that were sold between 1996 and 2005.
The deals are believed to be under scrutiny by the Justice Department, which has been conducting a criminal investigation of possible anti-competitive practices in municipal investments and derivatives since the end of 2006.
In August of last year, the San Diego Area Housing and Finance Agency settled a tax dispute with the Internal Revenue Service over $82 million of its "lease-to-own" bonds issued in 2001. SocGen served as forward purchaser, liquidity provider, and investment agreement provider in that deal, while CDR structured the transaction.
In December of 2007, the Harrisonburg, Va., Redevelopment and Housing Authority settled a similar tax dispute with the IRS over $83.3 million of its own lease-to-own bonds issued in 1999.
In May of that year, the Riverside-San Bernardino, Calif., Housing and Finance Agency settled another audit of a lease-to-own deal, this time involving $71.7 million of its bonds, which it issued in 2001. SocGen and CDR played similar roles in those transactions.