DALLAS — The Louisiana State Bond Commission gave its approval yesterday to refunding and restructuring $300 million of fuel-tax bonds issued in May 2009 to finance a portion of a constitutionally mandated transportation program.
The commission approved the conversion to SIFMA bonds of $200 million of second-lien revenue bonds issued as tax-free variable-rate debt obligations, enhanced with a letter of credit from JPMorgan Chase Bank, and the refunding of $103 million of the highway revenue bonds issued as taxable Build America Bonds. The bonds were priced Wednesday at SIFMA plus 75 basis points. Morgan Keegan & Co. was underwriter. Foley & Judell LLP is the commission’s bond counsel.
The commission authorized the sale at its April meeting.
The refunding bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
The 2009 bonds were issued to finance a portion of the $5.2 billion Transportation Infrastructure Model for Economic Development program authorized by a constitutional amendment approved by voters in 1989.
Freda Johnson, president of Government Finance Associates Inc., the state’s financial adviser, said the refunding was prompted by the savings that could be realized.
“We determined that we could save the state some money if we converted the two 2009 issues into SIFMA index bonds,” she said. “Saving the state’s money is a good thing.”
Whit Kling, director of the Bond Commission, said the state would see present-value savings of $7.7 million — savings of $4.6 million with conversion of the $200 million Series A-1 bonds and refunding the $103 million of Series A-2 BABs.
Gross debt-service savings are expected to total $8.2 million over three years, according to Kling.
The four interest rate swaps remaining on the bonds, based on floating-to-fixed interest rate swap agreement reached in 2006 to hedge the state’s interest payments, will continue, Kling said.
“Two things are accomplished with this sale,” he said. “You reduce the debt service, and you continue to kick the can down the road for another year.”
Kling said he expects Louisiana to issue another $500 million of bonds for the TIMED program by August.
Johnson said the 2010 bonds would mature in three years, by which time the swap agreements should be more favorable to the state.
“Hopefully in three years we’ll have an alternative plan,” she said. “If interest rates go up, the state will able to resolve those swaps in a more favorable environment.”
Chester Johnson of Government Finance Associates told the commission that the swaps would currently cost the state $40 million to terminate. The total fluctuates according to the market, he said.
“We’re at $40 million today, but three weeks ago, in the middle of the European debt crisis, the swap liability was at $80 million,” he said.