DALLAS — The Louisiana State Bond Commission continued its efforts Monday to allocate the state's remaining capacity of Gulf Opportunity Zone bonds by awarding $91 million of the tax-exempt bonds at a special session.
Commission director Whit Kling Jr. said the available capacity was approximately $160 million, but a minimum of $220 million of allocations issued in a drawdown mode would be returned to the available pool this week. Applicants assumed that proceeds of the drawdown bonds could be used after the hurricane-recovery bond program expired at the end of 2010, he said, but a recent Internal Revenue Service ruling means that remaining GO Zone bonds must be issued by Dec. 31.
Kling said under a drawdown mode, the issuer sells bonds to a bank, which then loans the proceeds to the issuer as the project progresses. The issuer is only obligated to pay interest on the bonds that have been tapped, which allows it to save money on lengthy construction projects when all the proceeds are not needed immediately.
"Everyone assumed the proceeds could be drawn down after the deadline, because for tax purposes all the allocation was assumed to be issued in the year when the first sale occurred," he said. "The IRS has now said you can't do that."
Kling said several issuers were planning to return their unused allocations to the available capacity as a result of the IRS decision.
The commission agreed to extend its 60-day deadline for issuing GO Zone allocations until the end of the year. The move will affect two allocations that were to have expired this week.
"They have not been able to issue their bonds," Kling said. "Hopefully, market conditions will improve so they can close."
Treasurer John Kennedy said the state will contact those who have sold their existing GO Zone allocations to determine if they could close on any additional allocations before the program expires.
"The intention is to sell all the bonds we have without leaving anything on the table," Kennedy said.
The regular monthly session is set for Dec. 16, but Kennedy said one or more special sessions could be held if GO Zone bond allocations are available.
The commission directed Kling to begin the process of replacing the line-of-credit provider for $200 million of GO bonds issued in 2008. BNP Paribas provided the original letter of credit, which will expire in July.
"We're looking to replace the line of credit before then," said Freda Johnson, president of Government Finance Associates Inc., the state's financial adviser. "We have a number of banks that could provide a new letter of credit, and we have several SIFMA- and LIBOR-related options."
The 2006 sale was authorized under the federal Gulf Opportunity Zone Act of 2006, which allowed Louisiana to issue up to $200 million of the federal tax-credit bonds. The state used the proceeds from the tax-credit bonds to establish an escrow fund to pay debt service on bonds issued before the hurricanes by 13 New Orleans-area entities.
The 2008 bond issue was restructured to change from the original 35-day auction-rate debt to a seven-day adjustable-rate schedule, Kling said.
The list of local entities receiving loans or grants in support of their pre-hurricane debt service requirements include the New Orleans Board of Liquidation, Louis Armstrong New Orleans International Airport, the Orleans Parish School Board, the New Orleans Exhibition Hall Authority, the Orleans Levee District, the New Orleans Sewerage and Water Board, the New Orleans Regional Transit Authority, and the New Orleans Port Board of Commissioners.
A new financial adviser will be sought following Johnson's announcement that she is retiring after 18 years as the state's adviser.
Johnson said GFA would remain as financial adviser until pending issues are resolved, which she said would take six months.
"It has been a wonderful 18 years, but there is a time for every season, and it is time to retire," she said.