DALLAS – Louisiana will avoid swap termination fees through a $307 million refunding of gas and fuels tax bonds authorized Thursday by the State Bond Commission.
The refunding will retain four fixed-to-floating swaps on junior lien variable-interest rate bonds issued in 2009 and 2010, said Commission Director Whit Kling Jr.
Without the refunding, Kling said, the state would face termination fees on the swaps that are currently estimated at $100 million.
“This is not an economic refunding,” Kling said. “We might get some minimal savings, but this refunding is to extend the terms of the swaps so we don’t pay the termination penalties.”
The state can later refund the variable-rate bonds as fixed-rate debt and face smaller termination penalties with the proper market conditions, Kling said.
The federal budget sequester may prevent the state from receiving the promised federal subsidy on $60.6 million of taxable Build America Bonds issued in 2009 for highway projects , Kling said. Louisiana is due to receive a 35% subsidy on debt service for the 2009A-4 tranche of bonds supported by the gas and fuels tax.
“There is a large concern that we will not get that money as a result of the sequester,” Kling said. “Other issuers have not received their most recent credit.”
The state filed for its BABs subsidy last week, he said.
Proceeds from a $300 million state general obligation bond will provide five to seven months of funding for state capital outlay projects. The bonds are expected to price April 30, which will require a special meeting of the Bond Commission, Kling said.
The issue will include $169.3 million of taxable GOs and $130.7 million of tax-exempt debt.
Debt service on the GO bonds is estimated at approximately $22 million in fiscal 2014. Those payments will put debt service for net state-tax supported debt at close to its constitutional limit, Kling told the Commission.
Debt service is capped at 6% of general fund collections, and the 2013 GOs will put total debt service in fiscal 2014 at 5.8% of expected collections, he said.
Expenditures from the capital outlay escrow account in fiscal 2014 are estimated at $600 million in fiscal 2014, Kling said, far beyond the capacity remaining under the debt service cap.
There is currently some $300 million remaining in the capital outlay escrow account.
“Unless there is a major uptick in state revenues, we may be restricted in issuing new debt that would fit under the limit,” he said.
Louisiana Department of Transportation & Development will fund additional projects from an $11.8 million premium obtained through a refunding of $173 million of outstanding gas and fuel tax bonds issued in 2006.
Citi, which holds the 2006 debt, agreed to a $12 million premium in exchange for the state extending the call dates on the bonds to 2023.
The payment will go into an escrow account to meet the department’s debt service payments on the refunding bonds in May and November 2013 and in November 2014.
The refunding is expected to close May 1, Kling said.