The Louisiana Tobacco Settlement Financing Corp. selected Citi as senior bookrunning manager for an $823.1 million refunding of tobacco settlement revenue bonds issued in 2001.
The panel also opted for a structure to capture up to $100 million of savings in the first two years of the refunding over the objections of Treasurer John N. Kennedy.
The refunding proposal is slated to be considered May 17 by the Louisiana State Bond Commission. The bonds are supported by the state’s share of revenue from the 1998 Tobacco Agreement.
Citi provided the top-rated proposal from the six companies responding to a request for underwriters. Assistant Attorney General Ben Huxen said six proposals were received for senior underwriter and eight for co-manager.
Jefferies & Co. Inc. was approved as co-senior manager for the refunding.
Co-managers include Bank of America Merrill Lynch. Raymond James, Stephens Inc., Southwest Securities, Williams Capital Group LLC, and Siebert Brandford Shank and Co. LLC.
“We have an underwriting syndicate with good representation in the institutional investor market and the important retail market,” said Commissioner of Administration Kristy Nichols, who chairs the commission.
The state can realize $100 million in upfront savings with the refunding, Nichols said.
The immediate savings will protect the state from long-term risks as revenue from the settlement drops as tobacco use declines, Nichols said.
Structuring the debt to lower annual interest costs or reduce the term of the bonds by a year or two would exposure the state to more risk than the immediate savings, said Nichols, who is Gov. Bobby Jindal’s chief budget officer.
Kennedy sought a delay in sending the request to the Bond Commission, which he heads. The additional time would give trustees a chance to review the proposals from the all the prospective underwriters.
“I doubt if we have the data we need to make this decision and fulfill our fiduciary responsibilities,” he said.
“This is not a simple transaction,” Kennedy said of the refunding. “If we’re going to take the upfront savings, let’s do it because it is the right thing and not just to plug a hole in the budget.”
The fiscal 2014 budget proposed by Gov. Bobby Jindal relies on $60 million from the refunding to fund a popular college scholarship program.
“This became a tainted proposition when the administration put it in the budget that we had to do this and we had to do it their way,” Kennedy said.
“Not only are we using one-time money, we are using borrowed one-time money,” he said. “We are breeching out fiduciary responsibility to the taxpayers of Louisiana.”
There is little difference in the savings between the short and long-term options, Nichols said.
“This is not a question of how the issue is to be structured,” she said. “It is about public policy, and it is good public policy to minimize the risk to the state while investing in our youth.”