Louisiana heads to market after dropping underwriter for gun policy

The state of Louisiana hits the market this week with more than $650 million in bonds, the first sale since the state disqualified one of its traded underwriters for failing to pass the policy litmus test. pro-state arms.

Wells Fargo Corporate & Investment Banking is set to price the $651.035 million Series 2022A Gasoline and Motive Fuel Taxable Revenue Refund Bond on Thursday.

The Series 2022 Notes will be issued as senior notes. Approximately $2.53 billion of first and second tier gasoline and motive fuel tax debt is outstanding.

“We anticipate substantial current value savings through our proactiveness,” Pamela Matassa Hayes, director of communications for state treasurer John Schroder, told The Bond Buyer.

The sale was originally expected to be approved in October, but the vote was postponed until November as the commission sought additional information and clarification on JP Morgan’s gun control policies.

At its Nov. 18 meeting, the Bonds Commission disqualified JP Morgan Chase from underwriting the refinance due to unanswered questions about its gun policies and recommended that Wells Fargo enter the deal.

The bonds are rated Aa2 by Moody’s Investors Service and AA-minus by S&P Global Ratings. Both agencies maintain a stable outlook.

Proceeds will repay all or a portion of the State’s outstanding Series 2015A gasoline and motive fuel tax revenue repayment obligations.

Issuance is secured by taxes on gasoline and fuels pledged on a first lien basis.

Moody’s said state gas and fuel tax obligations benefit from strong legal provisions that include “constitutional revenue protections for transportation purposes, no risk of appropriation, and healthy current coverage by promised revenue.” “. The first lien on pledged revenue is closed, except for refunds.

“In the flow of funds, part of the pledged revenue must first flow through the Government Bond Guarantee and Reimbursement Fund, to which the subordinate lien is more exposed. The transmission-related revenues promised to the bonds are linked to the volatile economic and financial situation of the energy-dependent state.

Moody’s said its stable outlook “reflects our expectation that earnings trends will continue to provide adequate and stable debt service coverage.”

S&P said its AA-minus rating for gasoline and fuel tax bonds is capped at the Louisiana GO AA-minus bond rating.

He cited as supporting factors strong debt service coverage, a broad tax base with collections that have improved since the start of the pandemic, and a closed lien on first-tier gas and gas tax bonds. current legislation limiting the additional emission of second-tier gas to parity. tax obligations.
The Series 2022A bonds are tentatively structured in series due May 1 ranging from 2032 to 2041 with a term bond maturing on a date to be determined.

At its Dec. 16 meeting, the Bonds Commission heard from Commission Director Lela Folse, who provided an update on the sale of the bonds.

The state offered existing taxable bondholders the option of depositing their bonds which would be purchased with proceeds from Series 2022A taxable persons.

Additionally, a tax-exempt tranche of Series 2022B bonds may be added at this week’s pricing, as the state has also offered tax-exempt bondholders the opportunity to showcase their bonds.

Series 2022B tax exemptions would be due May 1 and run from 2032 to 2041 with two term bonds maturing on a date to be determined.

Loop Capital Markets, UBS Financial, Morgan Stanley and Blaylock Van LLC are co-managers of the deal. Lamont Financial Services Corp. is the alderman and Foley & Judell LLP is the bond adviser.

In November, State Treasurer John Schroder announced his decision to recommend Wells Fargo enter the deal.

Schroder noted at the November meeting that JP Morgan was only disqualified from this offer and not removed from the list of state-approved underwriters for brokered deals.

Competitive sales are unaffected and all underwriters can bid on any competitive bids the state might sell.

JP Morgan was originally chosen because it had the cheapest bid, but Wells Fargo stood up and told the state it would underwrite the bonds at the lowest price that had been originally proposed.

Municipal rates have been volatile over the past few months and 2022 has brought higher returns. Investors are worried about rising interest rates as well as the lingering effects of the coronavirus pandemic, rising inflation and the possibility of increased regulation.
Looking at benchmark AAA GO scales, the 10-year muni was at 1.19% on Tuesday, according to Refinitiv Municipal Market Data, up 16 basis points from 1.03% at the time of the committee meeting. last month. The 30-year muni traded at 1.65% on Tuesday, up 17 basis points from 1.48% on Dec. 16.

Since the start of the COVID-19 pandemic in 2020, Louisiana has recorded approximately 908,000 cases with 14,054 deaths reported as of Jan. 8.

The state Department of Transportation and Development said 2021 was not a bad year overall by its metrics despite the lingering effects of the pandemic.

The DOTD said 228 highway projects were approved statewide, equating to an investment of $630.8 million last year. He noted that the ministry uses several different financing methods, such as issuing grant anticipation revenue vehicle bonds, using public-private partnerships and design-build contracts. This allowed DOTD to continue several large-scale projects that had been halted due to lack of funding and to start several new ones.

“While the year was another challenging year due to COVID-19 and Hurricane Ida, we were able to accomplish many milestones,” DOTD Secretary Shawn Wilson said in an overview. annual. “We initiated and completed several major projects, and probably the department’s greatest accomplishments over the past year have been the passage of the bipartisan Infrastructure Investment and Jobs Act (IIJA) through Congress. and the signing of vehicle sales tax legislation. .”

He noted that Louisiana is expected to receive nearly $6 billion in federal funding over the next five years from the IIJA and will begin receiving at least $150 million in fiscal year 2023-24 from vehicle taxes.

“I’m proud of the things we accomplished in 2021 and I’m extremely optimistic for 2022 and the years ahead,” he said.

Also at the committee meeting last month, an additional resolution was passed by the panel for the issuance of up to $280 million in general obligation redemption bonds to redeem series GOs. 2014A in circulation.

The state’s GOs are rated Aa3 by Moody’s and AA-minus by S&P and Fitch Ratings.

Since 2011, the state has sold more than $10 billion in debt, with most issuance occurring in 2012 when it offered $1.8 billion. The state was not on the market in 2018.

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