BRADENTON, Fla. – Louisiana plans to move quickly to refund up to $600 million of general obligation bonds to patch a portion of the state's budget deficits.
At a special meeting on Tuesday, the State Bond Commission unanimously selected an underwriting team led by JPMorgan, and bond counsel Foley and Judell LLP.
Co-managers will be Goldman Sachs, Raymond James & Associates Inc., Loop Capital Markets, and Drexel Hamilton LLC.
Details about the transaction were not discussed.
A bond commission spokesperson said those details will be presented at a regular meeting Thursday, when the commission will be asked to approve the bond resolution.
The commission received 22 responses to its request for proposals seeking firms to participate on the deal, said Director Lela Folse.
The refunding was included in House Bill 122, one of many bills that passed during the recently concluded special legislative session called to deal with fiscal 2016 and 2017 general fund deficits.
HB 122 "permits" the use of $80 million from GO refunding to eliminate a portion of the general fund deficits, a digest analyzing the bill said.
The bond commission's RFP for the GO refunding said the state will not extend maturities or consider refunding structures using derivatives.
The refunding bonds are expected to be delivered around April 26.
Banks were asked to propose deals that would achieve savings of 3% and 5% on an aggregate basis to "help address the state's current operating budget and debt capacity challenges."
The firms were also asked to "discuss the relative merit of proceeding with a refunding in the near term vs. waiting until closer to the call date of potential refunding candidate bonds."
On Thursday, the SBC will also hear about a state audit critical of past state financings that were used to address $545 million in prior year deficits that will cost $231 million more in interest.
From fiscal years 2011 through 2016, Louisiana's general fund deficits averaged $1.2 billion annually.
The state dealt with the shortfalls using borrowed money and non-recurring revenues to avoid cutting operating expenses or increasing revenues from taxes, licenses, or fees, said a 28-page report by the Louisiana Legislative Auditor's office released Feb. 11.
"The State Bond Commission, in accordance with state law, has used costly short-term measures that will not only increase future deficits, but will push the state closer to its debt limit, which will limit the state's borrowing capacity for capital outlay projects through fiscal year 2024," the audit said.
The state used $210 million in bond premiums to make debt payments between 2011 and 2016, and used $335 million in non-recurring funds to defease bonds in 2015 and 2016.
Louisiana has also "approved new projects faster than it can sell bonds to pay for them," the audit said, because of the state's debt limit.
The current administration and Legislature face a $3.7 billion backlog of approved spending for capital outlay projects that reduces capacity for new projects until fiscal 2024.
The extent of the state's current deficit is not clear, according to a speech Monday by Gov. John Bel Edwards to start off the Legislature's regular session.
Edwards said he expects the current-year deficit could run between $30 million and $60 million, and the 2017 shortfall could be more than $800 million.
He said a better idea of the deficit will be known after an analysis of the bills passed in the final hours of the recent special session.
On Wednesday, a revenue estimating conference is scheduled to revise the revenue forecast, recognize the impact of recent legislation, and report on interfund borrowing.
