DALLAS - The Louisiana State Bond Commission gave its tentative approval on Thursday to $210 million of revenue bonds to finance the state's student loan program, even though there is little chance the bonds can be issued until market conditions improve.
The bonds would be sold by the Louisiana Public Facilities Authority for the loan program operated by the Louisiana Education Loan Authority, a subsidiary of LPFA. The capacity is provided by a $25 million carryover from the state's fiscal 2007 private-activity bond volume allocation and $91 million in capacity from both the fiscal 2008 and 2009 allocations.
Meredith Hathorn, a bond attorney with Foley & Judell LLP, said it is unlikely that the student loan revenue bonds can be issued in the current unsettled market.
"We do not intend to issue these bonds in this distressed market," she said. "It is terrible."
The authorization allows for the bonds to be issued as variable- or fixed-rate debt for 31 years at a maximum interest rate of 16%, but Hathorn said there is currently no indication the bonds can be sold as variable-rate debt. Students who obtain financing under the Louisiana program currently pay 6.25% interest on the loans.
"We have to figure out a new way to do this," she said. "We'll be back with a viable plan."
James W. Parks II, president and CEO of LPFA, said he is hopeful the bonds can be issued by summer 2009 to provide funds for student loans.
"There are still lenders available, but we're not sure there will be lenders in 2009 and 2010," Parks said. "A lot of our schools are having to step in and find financing for their students so they can afford to enroll and pay tuition."
The commission again deferred action on a request by the Louisiana Local Government Environmental Facilities and Community Development Authority to issue $200 million for projects at schools in the Louisiana Community and Technical College System.
In November, bond commissioners took no action on the request after expressing concern that the bonds would count against the state's dwindling capacity for annual debt service, which is constitutionally limited to 6% of total state revenues.
In response to the commission's questions, system officials provided a list of priority projects and a plan to issue the bonds over at least three tranches. However, state Treasurer John Kennedy, who chairs the Bond Commission, said the information did not address his concerns.
"I'm not interested in the details," Kennedy said. "If you don't need all the money at once, why do you want all the money at once? I don't understand that."
Kennedy said lower-than-predicted state revenues are expected to reduce the state's ability to issue debt due to the constitutional cap. With only $200 million of bonding capacity currently available, Kennedy said the state must protect its ability to issue debt for vital projects outside the community college system.
Sen. Robert Marionneaux Jr. defended the community college system and said he wanted projects to get underway at campuses across the state.
"I don't want to fight over which campuses go first when we need the bond proceeds to get all the projects under way," he said. "I'm not going to be a party to that."
"We need to move forward in an orderly fashion and not fight over money," he said.