The Louisiana Local Government Environmental Facilities and Community Development Authority has settled tax law charges with the Internal Revenue Service to preserve the tax-exempt status of $110 million of Series A revenue bonds it issued in 2000.
The authority disclosed the so-called closing or settlement agreement in a material event notice filed with the nationally recognized municipal securities information repositories last week. The notice did not specify any amount paid or other terms of the settlement, and Steve Dicharry, the authority's executive director, said he could not provide any details.
However, the authority said in the notice that the Jan. 15 settlement agreement resulted from its appeal of a proposed adverse-determination letter that the IRS sent the agency in September 2004, which tit disclosed in a material event notice in November of that year.
The pooled bonds were issued to finance loans to local governments for capital projects and acquisition of equipment, according to Dicharry. In addition, the authority entered into a related interest rate swap.
The agency had said in its November 2004 material event notice that the IRS had based its proposed adverse determination "primarily on what it deems inadequacies of the demand survey utilized for sizing the bonds, the amount of the bond insurance premium paid to insure the bonds, the failure to integrate the interest rate swap as a qualified hedge, and the fact that Ambac [Assurance Corp.] guaranteed the payment obligations of its subsidiary which served as the counterparty for the related interest rate swap agreement."
The authority said at that time that the structure of the Series 2000A bond issue was "substantially identical" to that of the authority's Series 1999 bond issue, which the IRS previously examined without charging any tax law violations. It also said that all of the spendable proceeds of the 2000A bond issue were loaned to pool borrowers.
The Bond Buyer reported in December 2004 that the Securities and Exchange Commission had sent a so-called Wells notice to the authority and the financial advisory firm Holley, Tucker, Bossier & Nosacka, now Government Consultants, warning them that it was preparing to file securities law charges against them in connection with this and three other pooled bond issues. The authority responded to the Wells notice and no SEC action was ever taken, Dicharry said.
The Series 2000A bonds were underwritten by New Orleans-based Sisung Securities Corp., and Memphis-based Morgan Keegan & Co. Crawford & Lewis, now CrawfordLewis PLLC, in Baton Rouge was underwriters' counsel. McGlinchey Stafford in New Orleans served as bond counsel and Greenberg Traurig PA in Miami was special tax counsel. Casten & Pearce PLC of Shreveport was counsel to the issuer. The Holley Tucker firm was financial adviser and administrator of the bond program.