La. bids about $240 million in debt for Dome

• By MICHELLE MILLHOLLON
• Advocate Capitol News Bureau
• Published: Oct 4, 2008 - Page: 11A - UPDATED: 12:05 a.m.

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State officials agreed Friday to once again bid on nearly $240 million in debt for the Louisiana Superdome because of the shaky financial market.

State Bond Commission Director Whit Kling said that the arrangement is unfavorable for the state.

Bidding on the borrowing will tie up the state’s money and likely will cost the state additional money, he said.

The only alternative is to force the Louisiana Stadium and Exhibition District — or LSED, the entity that runs the Superdome and the New Orleans Arena — to pay a 12 percent interest rate on the borrowing, House Speaker Jim Tucker told lawmakers.

“Hopefully, the markets will calm down,” said Tucker, R-Terrytown.

After Hurricane Katrina, the district borrowed $300 million to refund $195 million in existing debt, repair storm damage and generate cash.

The majority of the borrowing was done through auction rate bonds, which offer a typically cheaper but volatile interest rate.

Some state officials have criticized the Blanco administration for pushing through such a risky borrowing arrangement. 

Auction rate bonds — the investment term for a loan — are sold every seven days to investors. The interest rate resets each time the bonds are sold.

The collapse of the high-risk housing market created a tight financial market. Investors now are less likely to bid on auction rate bonds.

Because no one wanted to bid on them, the Superdome bonds defaulted to a 12 percent interest rate that was supposed to be  a worst-case-scenario backstop. The higher interest rate cost the district an additional $600,000 a month.

Gov. Bobby Jindal pushed the state to bid on the auction rate bonds to lower the interest rate.

Six months ago, the U.S. Treasury agreed to allow the state to bid on the bonds as long as the interest rate was not below the market rate. The state got an interest rate of 2.9 percent.