DALLAS — Louisiana will refund up to $240 million of outstanding general obligation debt under a proposal approved Thursday by the State Bond Commission.
"We have identified a number of GO issues that would be economical to refund, that would provide savings to the state," said Freda Johnson, president of Government Finance Associates Inc., the state's financial adviser.
Louisiana should realize a reduction in debt service of almost $1 million a year, depending on the interest rate environment when the refunding is sold, she said
"The faster we can get to market, the more money the state is going to save," Johnson said. "The Federal Reserve has given indications recently that it might not wait until next year to begin raising interest rates. We want to take advantage of this rate environment."
The refunding bonds will come to market in a competitive sale with no enhancement due to the state's solid GO ratings, she said.
Fitch Ratings and Standard & Poor's both raised Louisiana's GO debt to AA-minus from A-plus in October 2009 as the state issued $324.8 million of GO bonds. Moody's Investors Service retained its A1 rating, but raised the outlook to positive from stable.
The refunding could occur within four weeks, Johnson said, but five to six weeks would be more realistic.
She said the refunding could amount to $240 million, "but that is the high end of it. I think it will be a little less."
The commission also approved an earlier-than-expected sale of state gasoline and fuel tax bonds for the constitutionally mandated Transportation Infrastructure Model for Economic Development capital improvement program that voters approved in 1989.
The next sale of TIMED bonds had been anticipated in late 2010, but state highway officials said a sale of up to $450 million is needed by July.
Michael Bridges, undersecretary for finance at the Department of Transportation and Development, said the highway program would run out of funds by August at the current rate.
TIMED had a balance of $324 million at the end of 2009, Bridges said, and is currently spending $46 million a month. He said the additional $450 million in proceeds would complete the projects currently under contract.
However, Bridges said, the state's four-cents-per-gallon fuel tax dedicated to TIMED will not be sufficient to support the revenue bonds. Debt service on the bonds will require using up to 1.4 cents of the state's 16-cents-per-gallon tax for at least the next four fiscal years.
The state has sold $2.4 billion of TIMED bonds since 2002, including $485 million in 2009. The debt is rated Aa3 by Moody's and AA by Standard & Poor's.
Louisiana plans to issue $300 million of new-money GOs this year. Johnson said the sale would occur after TIMED bonds are sold in the summer.
In other action, the commission accepted the latest report on Louisiana's net state tax-supported debt.
As of the end of 2009, the state had $5.74 billion of outstanding par debt.