DALLAS — Louisiana will pay approximately $16 million of swap termination fees with proceeds from an $82 million refunding of gasoline tax bonds approved Thursday by the State Bond Commission.
The sale will replace $60.6 million of outstanding weekly variable-rate debt issued in 2009 as taxable Build America Bonds with fixed-rate 30-year debt.
The refunding avoids a Nov. 1 hard put date on the 2009 debt, said Whit Kling, the commission's director. However, it will require the state to pay termination payments on two floating-to-fixed swap agreements with Wells Fargo.
Louisiana's second-lien gas and fuels tax revenue bonds are rated Aa2 by Moody's Investors Service, AA by Standard & Poor's and AA-minus by Fitch.
The refunding is not being done for economic reasons, Kling said, but to remove the headaches associated with weekly resetting of the interest rate on the debt and the looming hard put.
The Commission in November 2006 approved the sale of $485 million of gasoline and fuels tax bonds to be issued in December 2008. An agreement reached a month later included forward starting interest rate hedge agreements with four counterparties.
Those bonds could not be issued due to the market collapse in 2008, Kling said, and the swap agreements were extended for several months.
The bonds being refunded were issued in July 2009 as variable rate bonds in a weekly rate mode at three-month LIBOR plus 250 basis points.
Louisiana had little option in structuring the 2009 deal due to market volatility, Kling said, but current low interest rates provide an opportunity to resolve the situation.
"We might extend the agreements for five years, but then I'd be back before you to do something," he said. "Markets might change, interest rates might change."
Refiguring the debt service and the value of the swaps on variable-rate bonds every week is an administrative headache, Kling said.
"It changes every week and we're always behind," he said. "I want out of the variable rates and I want out of the swaps."
The federal subsidy on Build America Bonds has been reduced in the sequester, Kling said.
"There's no guarantee the lost subsidy will be restored," he said. "It almost certainly will not be."
Michael Bridges, undersecretary of the Department of Transportation and Development, said the shifting interest rates on the gasoline tax bonds complicate budget preparations.
"I'm one for making things simple and right now things are complicated," he said. "We don't know how much to put into our budget for debt service. Last year it was a lot more than we thought it would be."
In other business, Livingston Parish removed from consideration its request for $65 million of sales tax and special assessment revenue bonds to fund roads, bridges, and drainage infrastructure for a large retail development project.
The commission will get a report next month on the recent $662.9 million refunding by Louisiana Tobacco Settlement Financing Corp.
Yields of the July 2 sale ranged from 1.27% with a 5% coupon in 2016 to 5.30% with a 5.25% coupon in 2035.