DALLAS — Louisiana will structure an $806 million refunding of tobacco settlement revenue bonds to provide $143 million of savings over three years under a plan given final approval Tuesday by the Louisiana Tobacco Settlement Finance Corp.
Nine of the 10 trustees opted for the refunding structure supported by Commissioner of Administration Kristi Nichols. She said the up-front savings plan will protect the state from a drop in revenues from the nationwide tobacco settlement if tobacco consumption falls.
“Because of out-year risk associated with declining tobacco consumption trends, the upfront savings approach is a smart financial plan that’s also in the best long-term interest of the state,” she said.
Treasurer John N. Kennedy was the lone vote opposed to the refunding structure. He supported the refunding of the bonds issued in 2001, but said Louisiana would benefit more by lowering the payments on the current term of the tobacco bonds or paying off the outstanding bonds early.
“Despite the financial experts’ advice and against my objections, the current refinancing plan will leave money on the table by taking the savings from the refinancing up front to plug the state’s budget shortfall,” Kennedy said. “ Unfortunately, the plan chosen by the state for our tobacco bonds refinancing — taking the savings up front — saves the least amount. The other two options — lowering our payments or paying the bonds off early — will save millions more.”
Gov. Bobby Jindal’s proposed fiscal 2014 budget relies on $60 million from the refunding to fund a state college scholarship program. Senior underwriter Citi proposed a preliminary refunding structure that projects savings from the refunding of $67.2 million in fiscal 2014, $57.3 million in 2015 and $18.3 million in 2016.
The estimated savings are based on a refunding with a par value of $620.7 million, an expected premium of $81 million, and a liquidity reserve account release of $104 million. The refunding will provide a refunding escrow account of $744.7 million, a $58 million liquidity reserve account and $3.1 million of issuing costs.
Co-managers include Bank of America Merrill Lynch, Raymond James, Stephens Inc., Southwest Securities, Williams Capital Group and Siebert Brandford Shank and Co. Public Resources Advisory Group is financial advisor to the tobacco finance panel. Foley & Judell and Hawkins Delafield & Wood are co-bond counsels.
“Current market conditions are favorable and the timing is right for a refunding of the corporation’s outstanding tobacco bonds,” PRAG said in a report to trustees.
The preliminary schedule developed by the financial advisor calls for consideration of the refunding proposal by the Joint Legislative Committee on the Budget on May 29, with pricing on June 19. The proposal must also be approved by the State Bond Commission.
The Legislature created the Tobacco Settlement Financing Corp. in 2001 to issue $1.2 billion of bonds supported by the revenues from the 1998 Master Settlement Agreement settlement with cigarette companies.
The 2001 sale included $283 million of taxable bonds, which have matured, and $919.8 million of callable tax-exempt bonds, of which $823.1 million are outstanding. The bonds are securitized by 60% of the annual revenues from the master agreement.
After the meeting, Kennedy questioned whether the session’s notifications complied with Louisiana’s open meetings law.
The tobacco board usually meets in one of several committee rooms at the State Capitol, but Tuesday’s session was held in the Claiborne state office building across the street. Notices were posted in the building but not in the Capitol.
“Did the public and press know this was going to happen today? “ Kennedy said, “If they didn’t, that’s an embarrassment.”
Nichols spokesman Michael DiResto said the proper notices were posted, on-line as well as in the Claiborne Building. The corporation met there because legislative committees occupied all the large meeting rooms in the Capitol, he said.
“We requested a committee room at the Capitol for this meeting, and the only reason it was held here was because we were told that there was no committee room available,” DiResto said.