BRADENTON, Fla. - Louisiana Gov. Bobby Jindal is pressing forward with a plan to securitize the remaining 40% of the state's Master Settlement Agreement with tobacco companies.
Jindal, a Republican in his final year in office, wants the state to issue up to $875 million of tobacco revenue bonds for higher education scholarships and coastal restoration.
The plan must be approved by the Legislature during its April 13 through June 11 annual session.
The Louisiana Tobacco Settlement Financing Corp. board met April 9 and requested that the State Bond Commission place on its agenda the first of three tranches that will be sold.
A $300 million deal is expected to be issued in the current fiscal year if the Legislature authorizes the securitization. The tobacco financing board also voted to pay $1.96 million in issuance costs for the first transaction.
Rep. Bryan Adams, R-Gretna, who is vice chairman of the House Appropriations Committee, has filed House Bill 689 authorizing the new tobacco bonds.
"With cigarette taxes increasing, smoking bans becoming more popular and the rise of e-cigarettes, there's real potential for revenue losses to states," he said. "It's time for Louisiana to consider transferring its risk to bondholders."
The bill also requires that the State Bond Commission consider the bond issue in a timely manner when requested by the Tobacco Settlement Financing Corp.
The state has already securitized 60% of its MSA revenue.
State Treasurer John Kennedy, who chairs the Bond Commission and is a member of the tobacco corporation board, has objected to the procedures that have been adopted to prepare for the additional securitization.
Kennedy's objections include the plan to use the same finance professionals that worked on the state's $659.7 million tobacco bond refunding in 2013. He has also been critical about how quickly the Jindal administration devised the securitization plan.
When Kennedy was asked during the March 20 Bond Commission meeting when the tobacco bond deal would be on the agenda, he said it would be brought to the board "as soon as due diligence was done. It's going to take a while."
The professionals chosen to work on the first transaction include Citi as the book-runner and Public Resources Advisory Group Inc. as financial advisor. Hawkins Delafield & Wood LLP and Foley & Judell LLP are co-bond counsel. Special counsel is Breazeale, Sachse & Wilson LLP. Orrick, Herrington & Sutcliffe LLP and Breazeale, Sachse are underwriters' counsel.
The fees approved by the tobacco financing board include an estimated $450,000 for the underwriters' discount, $400,000 for ratings from Standard & Poor's and Fitch Ratings, $396,400 for six law firms, $200,000 for a tobacco consumption consultant, and $185,000 for the financial advisor.
While $875 million is the maximum amount of bonds the state can issue to securitize the remaining 40% of MSA revenues, the financing corporation expects $750 million of bonds can be issued based on current interest rates.
If the Legislature agrees to the securitization, the borrowing plan calls for issuing $300 million in the current fiscal year, $300 million in fiscal 2016, and $150 million in fiscal 2017.
Jindal, who is term limited out of office this year, has indicated that he will announce after the legislative session whether he will run for president.
On April 8, the governor hired Henry Goodwin to open an office in New Hampshire. Goodwin was former communications director for New Hampshire gubernatorial candidate Walt Havenstein.
Jindal has also opened an office in Iowa.