DALLAS - Louisiana will issue at least $303.5 million of 35-year, second-lien gasoline and fuel tax bonds this week in a negotiated sale that will benefit the state's ongoing $5.2 billion transportation program.

The issue will include $200 million of variable-rate tax-exempt debt enhanced with a letter of credit from JPMorgan Chase Bank NA and at least $103.5 million of variable-rate taxable Build America Bonds. Proceeds will finance the next 12 months of the Transportation Infrastructure Model for Economic Development capital improvement program that voters approved in 1989.

The bonds will be supported by the full state fuel tax of 20 cents. Earlier bonds for the TIMED program were supported by the four-cent per gallon tax dedicated to the highway effort, but current revenue from the dedicated tax will not provide sufficient debt service for additional bonds.

"We've shut down the senior-lien program," said Freda Johnson, president of Government Finance Associates Inc., Louisiana's financial adviser. "The state will not be issuing any more senior-lien debt in this program unless and until those revenues rebound."

The size of the taxable component could grow to $120 million to $130 million if there is sufficient investor interest, according to Johnson.

"The Build America Bonds have done very well in the few offering so far," she said. "We need at least $103.5 million from those bonds, and anything else we get will just give the Department of Transportation and Development more money."

The bonds will price at the end of the week, Johnson said. The pricing period could extend into next week.

Morgan Keegan Financial Products is the sole underwriter on the $200 million tax-exempt issue. Co-underwriters are expected to be named for the BAB issue, but none had been selected as of Friday.

Foley & Juddell LLP is serving as bond counsel.

Moody's Investors Service has ranked the second-lien bonds at Aa3, and raised the rating on the outstanding senior-lien bonds to Aa2 from Aa3. The outstanding state bonds supported by the four-cent per gallon fuel tax have underlying ratings of AA-minus from Standard & Poor's and A-plus from Fitch Ratings.

Johnson said the state was pleased with the high marks from Moody's.

"We're thrilled," she said. "We think these bonds will attract a lot of interest in the marketplace."

With the sale, Louisiana will have almost $2.2 billion of outstanding gas and fuels tax revenue debt. A sale of $500 million of gas and fuels bonds is tentatively set for 2010.

Officials had planned to sell the bonds in December, but delayed the sale due to market conditions and to avoid a termination penalty that could have totaled more than $100 million for a forward floating-to-fixed interest rate swap agreement reached in 2006.

The swap will become effective on the 50% of the swap held by JPMorgan Chase Bank and 12.5% held by Morgan Keegan. Johnson said no determination has been made on how to deal with the 25% held by Merrill Lynch Capital Services and the 12.5% held by Citibank NA.

The variable-rate taxable bonds will reset monthly to a still-undetermined percentage of the London Interbank Offered Rate plus an agreed-upon spread to a maximum of 12%. Bondholders could optionally tender the bonds to Morgan Keegan, with six month's notice, on May 1, 2012, and every May 1 thereafter.

If the tendered bonds are not refunded or remarketed, they immediately become term-out bonds. The state would be required to redeem the bonds with 18 equal monthly installments of principal and interest.

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