BATON ROUGE – Commissioner of Administration Kristy Nichols lauded the passage of a resolution today by the board of the Tobacco Settlement Finance Corporation (TSFC), providing preliminary approval to pursue a refunding of outstanding tobacco settlement bonds, a move that is estimated to save the state between $75 million and $85 million.
Today’s action also authorized the hiring of a number of professional advisors who will counsel the board on the best structure of the refunding.
“With interest rates at historical lows, it makes great financial sense to refinance these bonds now and generate substantial savings,” said Commissioner Nichols, who serves as chairman of the TSFC board. “The state Legislature created this corporation as a means of leveraging the tobacco revenues to achieve greater financial benefit to the state – a mission we are prudently fulfilling by refunding now and capturing the savings without extending the length of the debt.”
Refunding occurs when an entity has issued bonds that become callable and calls those debt securities from the debt holders with the express purpose of reissuing new debt at a lower interest rate. Since 2001, market interest rates have declined by approximately 2 percent. Because the bonds are currently callable, the TSFC decided to act now to capture as much savings as possible and before a potential rise in interest rates.
Board member Christopher “Kim” Carver said, “The opportunity to generate revenues for the state has been a goal of this corporation since its inception, and I'm very pleased by the step we have taken today to continue achieving that goal."
The TSFC owns 60 percent of the revenues that resulted from the Master Settlement Agreement. In November 2001, the TSFC issued $1.2 billion in bonds backed by this revenue. It issued $283 million taxable bonds and $919.8 million tax-exempt bonds. Since that time, all of the taxable bonds and $96.7 million of the non-taxable bonds have been redeemed. Today’s vote sets the stage for refunding the approximately $823.1 million in tax-exempt bonds that remain outstanding.
Board member William Raspberry said, “The expected savings will not only benefit the state, but because they go to the TOPS fund they will also protect investments that help Louisiana young people gain a valuable college education."
Under state law, any residual bond proceeds from a refunding go to the TOPS fund in the constitutionally-established Millennium Fund.