DALLAS — The Louisiana State Bond Commission approved a plan Tuesday that allows the state to continue for another year its investment in auction-rate tax-exempt bonds issued in 2006 by the Louisiana Stadium and Exposition District.
The conditional Internal Revenue Service ruling that allows the state Treasury to hold the bonds as an investment will expire Dec. 31.
Bond counsel Meredith Hathorne of Foley & Judell LLP said the IRS granted Louisiana a one-year exemption last year to the federal ban on states acquiring their own tax-exempt debt, and another one-year extension is being sought for 2011.
"I'm guardedly optimistic we will be successful," Hathorne said. "We should have a decision soon."
The state purchased $225.8 million of the district's bonds in April 2008 at the district's request. The district asked the state to buy the bonds when the interest rate went to 12% from 4% almost overnight due to downgrades of the insurance provider.
The unexpected failure in the auction-rate market raised the debt service paid by the agency, which oversees the Louisiana Superdome in New Orleans, to $65,000 a day.
Commission director Whit Kling Jr. said holding onto the bonds was the only option, even if the IRS exception is not extended through 2011.
"There is nothing on the horizon that is advisable or even acceptable," Kling said. "There is no market for these bonds."
In addition, Kling said, the district bonds carry fixed-to-fixed and fixed-to-floating-rate swaps that would cost $56 million to terminate.
Kling said if the exemption were not extended, the bonds would convert to taxable debt.
"That could cost the state $400,000," Kling said. "Even so, we would have to hold onto the bonds."
Hathorne said the state would have to hold onto the stadium district debt even if the extension is not granted.
"We would have to accept any kneecap provisions from the IRS and retain the bonds," Hathorne said.
Gov. Bobby Jindal has certified that it is in the best interest of the state to continue holding the debt, Kling said, as has the Joint Legislative Committee on the Budget.
The stadium district's bonds, which are rated Baa3 by Moody's Investors Service and B by Standard & Poor's, are supported through Superdome revenues and the district's 4% hotel-motel tax.
The state holds more than 99% of the stadium district's outstanding tax-exempt debt from 2006.