DALLAS — Louisiana avoided paying swap termination fees totaling more than $66 million on second-lien gas and fuels tax bonds with replacement hedge agreements approved Friday by a special subcommittee of the State Bond Commission.
The novated agreements cover two series totaling $181.9 million of taxable Build America Bonds issued in 2009.
Quick action on the novations was necessary because $121.3 million of the bonds, with Merrill Lynch & Co. as counterparty, carried a mandatory swap termination date of May 1. Another series of $60.6 million, with Citibank as the counterparty, had a July 1 termination date.
Each of the series included two swap agreements. The state faced penalties of $9 million and $35 million for the $121.3 million of BABs and $4.7 million and $17.5 million for the smaller issue.
The 2009 bonds carried a variable rate of the London Interbank Offered Rate plus 250 basis points and a swap rate of 70% of the one-month Libor average.
The subcommittee accepted a bid from Jefferies & Co. and Bank of New York for a 10-year term on the $121.3 million Series 2009A-3. The winning bid on the $60.3 million Series 2009A-4 came from Wells Fargo, which offered to extend the existing agreement through the nominal maturity date of 2043. Both agreements meet the standard set by the Bond Commission on March 15 of no more than a 1% increase in the interest paid.
The state sent requests for proposals to 12 firms to amend the swap agreements and received five responses.
Bond counsel Meredith Hathorn of Foley & Judell LLP said the final agreements are being worked out and should be completed within two weeks.
The 2009 bonds refinanced a portion of the variable-rate debt issued in 2006 for the $5.2 billion Transportation Infrastructure Model for Economic Development program. The statewide TIMED highway construction effort was authorized by a constitutional amendment approved by voters in 1989.
The original forward floating-to-fixed interest rate swap agreement allowed the state to lock in a rate of 3.602% for the gasoline and fuels tax revenue bonds.
However, the state became vulnerable to the termination penalties when interest rates fell rather than rose.
The TIMED bonds are supported with 4 cents of a 20-cent-per-gallon increase in the gasoline tax approved by voters in 1989. Revenue from the remaining 16 cents goes into the trust fund to pay for other highway construction and maintenance efforts.
The total state gasoline tax is 38.4 cents per gallon.