“Today we received nine bids from Wall Street investment banks, each of which demonstrated a real interest in investing in Louisiana municipal bonds,” said Treasurer Henson. “These bids were favorable even in the light of recent market adjustments and the Street’s recent downgrade in Louisiana’s bond rating.”
All three rating agencies have downgraded the state’s bond rating over the past two years. Louisiana’s budget struggles and supporting revenue problems were factors in the downgrades.
The state’s bond rating is similar to an individual’s credit rating. A better rating makes it less expensive for the state to borrow money to pay for projects.
Louisiana typically holds one or two large GO bond sales a year to fund projects the Legislature approves in the capital outlay budget. The state issues bonds to investors who loan the cash up front to fund the projects. Bank of America/Merrill Lynch had the winning bid today with a true interest cost to the state of 3.445 percent.
Today’s bond sale was the second time the state used a new approach where all bond proceeds are used for capital projects. Previously, a portion of the bond proceeds was used to pay interest during the first year after the bond sale. This had the effect of the state paying interest on top of interest for the next 20 years, a practice the state no longer follows.