DALLAS — Louisiana will refund up to $850 million of gasoline and fuels tax revenue bonds May 1 in a negotiated sale as officials strive to take advantage of current low interest rates.
The refunding tranche will be between $535 million and $850 million, depending on the mood of investors at the time of the pricing.
“We’re looking at the market and we’ll decide how much to refund when we see what the rates are going to be,” said Treasurer John N. Kennedy, chairman of the State Bond Commission.
“If we get the right price, we will pull the trigger,” he said. “Things can change between now and Tuesday.”
Kennedy said he expects interest rates will probably never again be as low as they are now. “We’re looking hard at every past state bond issue to see if there are refunding opportunities,” he said. “I’m encouraging my colleagues in local governments to do the same.”
Interest rates could rise soon due to inflationary pressures, Kennedy said.
“I am not predicting interest rates will go up, but I fear they will,” he said. “Rates have been low for a long time, and sometimes familiarity breeds complacency.”
The state expects to realize at least $62 million in gross savings and $45 million in present-value savings from the refunding.
The bonds are rated AA-minus by Fitch Ratings and Aa1 by Moody’s Investors Service. Louisiana has $1.86 billion of outstanding gasoline and fuels tax revenue bonds.
Citi was selected as senior managing underwriter for the negotiated sale by the commission in March from 12 firms seeking the position. Eighteen underwriters responded to a request for proposals issued in January by the commission.
Co-managers include Jefferies & Co., Raymond James | Morgan Keegan, Loop Capital Markets LLC, Stephens Inc. and Dorsey and Co.
Foley & Judell LLP is bond counsel. Lamont Financial Services is the state’s financial advisor.
The bonds being refunded were supported by revenue from a constitutionally dedicated 4 cents of the state’s 20 cents per gallon tax on gasoline and diesel fuel.
The refunding bonds will be supported by the dedicated tax along with a portion of the 16 cents that now goes into the state’s transportation trust fund.
The 4 cents of dedicated portion of the fuels tax generated $121.5 million in fiscal 2011, with revenue from the remaining 16 cents tax totaling $486 million.
“This is a very strong credit,” Kennedy said. “It is constitutionally protected and not subject to annual appropriations.”
The original bonds were issued to finance the state’s Transportation Infrastructure Model for Economic Development program, which was approved by voters as a constitutional amendment in 1990.
The TIMED effort was to consist of 16 projects involving 539 miles of highway and bridge construction and improvements to the Port of New Orleans and Louis Armstrong New Orleans International Airport.
Eleven projects have been completed, three are under way and the remaining two will not be financed with state revenue bonds. The 14 projects have a total cost of $4.6 billion.
Louisiana sold its last tranche of senior lien bonds for the TIMED program in 2009 and the final junior-lien issue in 2010.
