State restructuring bond debt from ’06
A new debt refinancing plan for the Louisiana Stadium and Exposition District includes a $108 million payment to get out of a loan agreement that became too costly.
The $108 million termination charge is part of a $361 million bond refinancing approved by the state Bond Commission on Thursday.
“We got a good deal,” state Treasurer John Kennedy said. The refinancing gets the district and the state out of “one of the worst deals I’ve ever seen. We lost a lot of money,” he said.
The initial borrowing was done to put what is now called the Mercedes-Benz Superdome back into commerce following Hurricane Katrina and included money for renovations, improvements and working capital.
Former Gov. Kathleen Blanco’s administration initiated the borrowing plan which was opposed by Bond Commission staff. The commission approved it anyway.
The bulk of the borrowing was done through auction rate bonds, which offered a cheaper, but volatile, interest rate. Investors became reluctant to bid on auction rate bonds. That triggered a default to a 12 percent interest rate.
The Stadium District found itself paying a 12 percent interest rate, which amounted to $65,000 a day, instead of a 2 percent rate.
There was no way for its revenue stream to support those kinds of payments so the state stepped in and purchased the bonds — some $250 million worth of the total borrowing. Special legislation had to be passed in 2008 to authorize the state to purchase the bonds. In addition, permission had to be received from the U.S. Treasury Department for the state to buy back the bonds without them being taxed.
“It was a mess,” Kennedy said. He said the original deal should never have been entered into “in the middle of a crisis.”
Under the new deal the state would continue to hold $50 million of the bonds and get paid a 1.25 percent rate for the 20-year duration of the borrowing.
State Bond Commission Director Whit Kling said the new deal returns to traditional tax-exempt bonds and locks in a fixed rate “eliminating the volatility and returns $200 million to state coffers.”
Kling said the deal also makes debt payments more affordable to the operators of the Superdome.“They generate enough money now to pay that debt service,” Kling said.
A lawsuit filed against Merrill Lynch for allegedly misleading the state about the stability of the auction rate bond market was also settled as a result of the deal.
The company will “kick in $9 million toward the deal,” Kling said.