DALLAS — Louisiana has delayed a scheduled sale of $96.1 million of refunding bonds due to the recent rise in interest rates.
The refunding had been expected to go to market in a competitive sale Thursday, but Chester Johnson of Government Finance Associates Inc. told the State Bond Commission that the spike in interest rates made it unfeasible until the market rebounds.
Government Finance Associates is the financial adviser for the state.
The commission gave its approval last month to the plan by Louisiana Office Facilities Corp. to sell up to $145 million of bonds to refund lease revenue bonds issued in 2001 and 2003. Lela Folse, assistant director of the bond commission, said in October the state expected $8 million in savings with the full refunding.
The state had hoped to sell the bonds before Thanksgiving to avoid what Freda Johnson of Government Finance Associates at the October commission meeting called “the December deluge.”
Chester Johnson said most of the jump in interest rates was caused by too few buyers facing a large volume of tax-exempt debt entering the market. He said retail buyers were particularly scarce.
Tax-exempt yields rose steeply on Wednesday for the third day in a row. A flood of new-money issues resulted in 30-year yields reaching another 15-month high.
The triple-A yield curve has increased 76 basis points since Nov. 1, according to Municipal Market Data, and 20-year yields have risen 67 basis points. The 10-year scale has increased 50 basis points over the same period.
“I suppose you could say a perfect storm caused the bond market to really fold this week,” Johnson said. “It’s not going to stay this way, but when the [interest rate] floor is reestablished, it’s going to be a more expensive floor.”
Johnson said close attention is being paid to market conditions to determine when the refunding can occur.
“We’re looking at the market daily,” he said. “We could sell it next week, but right now is not a good point to be going into the market.”
“It is a day-to-day decision,” Johnson said.
Johnson said another $10 billion of tax-exempt bonds may be headed to market the week after Thanksgiving.
“Issuers that plan to get into this market need to be ready to move in an instant, and go whenever the market stabilizes for even a short time,” he said.
The commission split the $36 million of remaining taxable Gulf Opportunity Zone bonds among three applicants that had requested a total of $470 million of the private activity bonds.
Commission director Whit Kling Jr. said there are $1.6 billion of authorized but unissued GO Zone bonds, which must be issued by Dec. 31, when the program will expire. Several of the authorizations are set to expire Dec. 11, Kling said, when under current rules the unissued capacity would be returned to the available pool.
The commission voted to hold a special meeting before next month’s regular session to allocate the available capacity to viable projects.
“We have two objectives,” said Treasurer John N. Kennedy, who chairs the commission. “We want to give everybody a fair bite at the apple, and we want to use all the bonds we were given.”
The federal legislation that authorized the GO Zone program allocated $7.8 billion of GO Zone bond capacity to Louisiana. More than $6 billion of the bonds have been issued.