DALLAS — Louisiana will use floating-rate bonds with a three-year hard-put maturity to refinance $200 million of variable-rate general obligation bonds issued in 2008 for debt-service relief to hurricane-battered local issuers.
The State Bond Commission accepted the recommendation of its financial adviser to issue the floating-rate refinancing bonds, which will be tied to a percentage of the London Interbank Offered Rate that remains to be negotiated.
Foley & Juddell LLC was selected by the commission as bond counsel on the transaction.
Proceeds from the 2008 bonds refunded $200 million of Gulf Opportunity Zone tax-credit bonds issued in 2006 for local government debt-service relief following the hurricanes of 2005.
Freda Johnson of Government Finance Associates Inc. said the floating hard-put debt proposal was the most cost-effective option for refinancing the 2008 bonds.
Johnson said the bonds should be issued by June 1 because of the July 17 expiration of a letter of credit provided by BNP Paribas.
Refinancing the entire issue with fixed-rate debt would require adding $18 million to the transaction because of swap termination penalties on the 2008 bonds, according to Johnson.
She said an analysis of the available options determined that it would be more expensive to issue the floating-rate bonds with a soft put.
Hard-put debt would have a maturity deadline with a specific date that could not be extended, she said. If the date was not met, the bonds would be in technical default.
If the soft-put deadline was not met, the state would pay a higher penalty interest rate but there would be no default. The penalty rate could be as high a 12%, Johnson said.
“The soft-put option is far more expensive to the state,” she said. “We would not recommend it. You have much more flexibility with a soft-put sale, but you pay for that flexibility.”
The state received eight quotes, based on Libor percentages ranging from 70% to 100%, on the three-year hard-put option.
Proceeds from the tax-credit bonds established an escrow fund for debt service on bonds issued by 13 New Orleans-area entities before the hurricanes of 2005.
The commission approved $150 million of revenue bonds to be issued by the Louisiana Public Facilities Authority for the Ochsner Clinic Foundation. Proceeds would fund new medical classrooms at its main campus in Jefferson Parish as well expansions at other facilities in seven other parishes.
Ochsner will use the new facilities to train medical students from the University of Queensland in Australia. The school will recruit students in the United States, who will train in Australia for two to three years and then complete their education at the New Orleans-area school.
Three applicants for Gulf Opportunity Zone bonds received a total of $300.8 million of the tax-exempt private-activity bonds.
State Bond Commission director Whit Kling Jr. said the allocations will exhaust the final capacity remaining in Louisiana’s $7.8 billion of capacity.
Kling said all but $100 million of the authorized GO Zone bonds have been sold, and he expects no more unsold allocations to be returned to the state before the program expires at the end of 2011.
