DALLAS — The Louisiana State Bond Commission yesterday approved a $200 million state general obligation bond issue that will refund the $200 million of Gulf Opportunity Zone tax-credit bonds issued in 2006 for local government debt service relief following the hurricanes of 2005.

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 state pays the principal on the bonds, the local government entities repay the state over time, and bond purchasers receive income tax credits from the federal government in lieu of interest.

Louisiana provided its required match for the tax-credit bonds with $194.4 million of GO bonds issued at the same time as the tax credit bonds, along with $100 million from the state general fund appropriated by the 2006 Legislature.

The GO Zone Act also allowed Mississippi to issue up to $100 million of tax credit bonds, and Alabama $50 million. The bonds had to be issued by Jan. 1, 2007, and must mature within two years of their issuance.

Whitman Kling Jr., director of the State Bond Commission, said the $200 million in tax credit bonds must be refunded by July 18.

The 2006 bonds, which were insured by CIFG AssuranceNA, carry underlying ratings of A2 from Moody's Investors Service, and A from Standard & Poor's and Fitch.

Kling said the bond-financed escrow fund would pay the debt service on the bonds from the 13 entities for five years, but the period could be extended at their request.

"These governments can ask for a five-year extension, and then for another 10-year extension," he said.

Kling said a forward delivery purchase agreement reached in 2006 for the 2008 bonds will be retained with some amendments.

"We knew in 2006 that this sale would occur in 2008," he said. "We wanted to make sure we had a market for the bonds."

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, and to replace the planned bond insurance from CIFG with a line of credit from BNP Paribas.

Morgan Keegan& Co. is the lead underwriter for the refunding bonds. Other members of the underwriting team include Goldman, Sachs& Co., Estrada Hinojosa & Co.,Loop Capital MarketsLLC, and A.G. Edwards & Sons Inc.

Bond counsel for the refunding bonds is Jones, Walker, Waechter, Poitevent, Carrére & DenégreLLP. Government Finance Associates Inc. is the financial adviser.

A forward swap agreement fixing the 4.303% interest rate that Louisiana will pay on the refunding bonds was retained, Kling said, because the state is currently on the negative side of the swap. Reciprocal payors Morgan Keegan Financial ProductsInc. and Goldman Sachs Capital Markets LP have agreed to pay the state 70% of the one-month London Interbank Offered Rate.

The local entities receiving loans or grants in support for 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.

In other action, the bond commission gave its final approval to $100 million of GO Zone bonds to be issued by theLouisiana Public Facilities Authority on behalf of Dynamic Fuels LLC's project to build a renewable synthetic fuels facility in Geismar, La.

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