BRADENTON, Fla. – Louisiana will use a short-term borrowing strategy to avoid disclosure requirements that would be challenging in the midst of a gubernatorial transition.
The State Bond Commission and the Joint Legislative Committee on the Budget held separate meetings Thursday to approve the private placement of a $255 million bond anticipation note by negotiation in January.
The BANs will be taken out with 20-year general obligation bonds in six to nine months, after Gov.-elect John Bel Edwards takes office and the Legislature tackles a structural budget imbalance that has attracted warnings from two rating agencies.
Louisiana typically issues long-term GO bonds competitively to finance capital projects. The state hasn't done a short-term offering since the 1980s.
"The reason we are here today is because these are not normal times," Treasurer John Kennedy told the Joint Legislative Committee on the Budget, whose approval of the deal was necessary to allow the financing to be done by negotiation.
Kennedy told the committee that the Bond Commission recommended directly placing a BAN because it will not require filing an official statement that must meet "very vigorous disclosure requirements" of the Securities and Exchange Commission.
Kennedy said it would be difficult to produce an OS at this time with one administration going out and another coming in.
"A lot is happening" in the oil markets and with the state budget, he said.
Earlier in the day, the State Bond Commission authorized moving forward with the transaction after receiving 12 proposals from various banks.
Bond Commission staff will negotiate with JPMorgan, Wells Fargo, and Goldman Sachs to get the best pricing on a direct placement BAN that will be taken out later with long-term GO bonds.
Edwards acknowledged the state's structural budget problems during his campaign for governor, and promised to call a special legislative session in February. His inauguration is Jan. 11.
Moody's Investors Service said in a Dec. 10 comment that recent actions by the state to close a $487 million mid-year deficit using one-time budget cuts has exacerbated credit pressures facing the state.
Moody's rates the state's GOs Aa2 with a negative outlook.
On Dec. 3, Fitch Ratings said it had similar concerns about the state's quick budget fixes, and warned that additional fiscal stress could negatively pressure the state's AA rating. Fitch maintained its stable outlook.
Standard & Poor's assigns AA ratings and a negative outlook to Louisiana's GOs.
