DALLAS — Louisiana will take a two-part, $375.3 million general obligation refunding to market Tuesday in a competitive sale, almost six months after the state had scheduled it.
The State Bond Commission in March approved a GO refunding of up to $600 million. However, the commission deferred the sale at its April meeting because some of the issues to be refunded were involved in an audit by the Internal Revenue Service.
“It was very much a routine audit,” said Freda Johnson, president of Government Finance Associates Inc., the state’s financial adviser. “It was completed this summer, with no action required, and now we’re ready to go ahead with the sale.”
The sale includes two series, one for $213.7 million and another totaling $161.6 million.
The final maturities of the new bonds do not extend beyond the final maturities of the bonds being refunded.
The refunding will provide a net present-value savings of $29 million, or about 7.6% on an aggregate basis, Johnson said.
“That’s not significantly different than it would have been if we had gone ahead with the sale in April,” she said. “Those are the ballpark numbers, and they should hold unless rates do something crazy between now and Tuesday.”
“I don’t expect they will,” she said. “Rates have gone up a little in the past few days, but the market is very, very attractive right now.
Louisiana’s GOs are rated AA-minus by Standard & Poor’s, AA by Fitch Ratings, and Aa2 by Moody’s Investors Service. The state has $2.2 billion of outstanding GO debt.
Adams and Reese LLP and Long Law Firm LLP are co-bond counsels.
The total amount of bonds being refunded could be altered after the bids are received Tuesday, according to Johnson.
“After the winning bids are accepted, the Bond Commission could change the par amount by 10% up or down,” she said. “The state wants to keep debt service payments as close to level as possible.”
Amending the par value after the sale is a common practice, Johnson said.
“We’ve done it five to 10 times this year for other clients,” she said. “That’s the conservative approach. Looking for up-front savings can be a sign of financial distress.”
Louisiana Treasurer John Kennedy said the lower debt-service payments resulting from the refunding will help in dealing with a looming revenue drop.
“We’ll be saving millions of dollars in debt service over the next 12 years, and every little bit helps,” he said. “These are challenging times for all the states, and we’re in a little better shape than others. We’re looking at a revenue shortfall in the next fiscal year of between $1.5 billion and $2.5 billion. Part of the problem is that the current budget spends $2.8 billion in non-recurring revenues, and next year that money will be gone.”
The state is fortunate that interest rates remained low during the lengthy delay in the refunding, Kennedy said.
“We got lucky,” he said. “It’s hard to predict what interest rates are going to do, and sometimes I’d rather be lucky than be good.”