New Orleans City Council unanimously approved the issuance of up to $200 million in refunding bonds that will remove from the city's balance sheets a 12-year-old bond deal that went bad, costing the city millions more than anticipated.
“This particular bond refunding wil — if it gets approved, and, as we expect the bonds get refunded — will take a significant step toward cleaning up the city’s balance sheets not only after Katrina but after the 2008 financial crisis," said Deputy Mayor and Chief Administrative Officer Andy Kopplin before the vote today.
Most of the money will be used to pay off more than $100 million outstanding on the city’s $170 million taxable pension revenue bonds, Series 2000, issued to finance the city’s obligations to the New Orleans Firefighters Pension (the old system for firefighters hired before 1968), as well as terminate a complex, and ultimately failed, interest rate swap the city entered as part of the deal.
The refinance will help the city avoid a crippling $120 million payout on the remaining principal amount from the 2000 deal, which would be due in March 2013, when the old bond deal expires.
Repaying the bonds has cost the city about $19 million per year since 2008, when the city's bond insurer lost its high credit rating and the bank marketing the bonds to investors took them off the market. Their continued presence on the books, as well as the looming payment deadline, have made credit ratings agencies wary of New Orleans, Kopplin said.
“This particular credit on New Orleans' balance sheet is the one they ask about repeatedly, often, and the one they get very panicked about,” Kopplin said.
Though details were not immediately available, Kopplin said the new debt will be simpler, have a lower interest rate and will not extend beyond 2030, when the original bonds were to be paid off. Kopplin said he expects the refund to be complete by the end of next month.