Louisiana Participates in Historic Competitive Interest Rate Swap

            Treasurer Kennedy Says Swap Will Result in Savings for Road and Highway Projects

BATON ROUGE, LA – Louisiana accepted competitive bids for a $485 million forward interest rate swap agreement that will result in significant savings to finance road and highway improvements in the TIMED program, according to State Treasurer John Kennedy.

“Few governments have bid a swap competitively for an issue of this size and duration,” said Treasurer Kennedy. “Competition was the key element in the transaction’s success. We knew it would be extremely important to have a diverse group of participants in order to achieve an aggressive interest rate.”

An interest rate swap agreement is a way for the state to lock in a long-term fixed interest rate to hedge against the risk of a variable rate that could increase in the future. The state entered into the swap to lock in a rate of 3.602 percent for gasoline and fuels tax revenue bonds that will be issued in 2008. The rate was 110 basis points lower than the 4.7569 true interest cost for the state’s November TIMED bond sale.

Six firms participated in the competitive bidding process submitting bids ranging from 3.602 percent to 3.6115 percent. Morgan Keegan submitted the winning bid of 3.602 percent and was awarded 50 percent of the swap. Merrill Lynch, the next lowest bidder, received 25 percent of the swap after it matched Morgan Keegan’s bid. The third lowest bidders, Citibank and J.P. Morgan, were tied, so each was awarded 12.5 percent of the swap after matching the Morgan Keegan rate.

Government Finance Associates, Inc. (GFA) served as financial advisor for the deal and Foley and Judell served as bond counsel. CIFG and XL will insure the swap payments. “The market was in our favor, but the bidding process would not have gone as smoothly were it not for the hard work of the state’s financial advisor and bond counsel,” said Treasurer Kennedy.

“We are most pleased to have had the opportunity to work on this transaction, and we are proud to have completed such a successful competitive bid process and to have assisted in obtaining such an outstanding rate for the benefit of the state,” said J. Chester Johnson, Chairman of GFA.

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