Louisiana Invests in Levees to Protect Its Future: Muni Deals

Louisiana, which continues to recover almost nine years after Hurricane Katrina, the most expensive U.S. storm, is tapping bond investors this week to pay for flood protection and building renovations.

The state is offering $496 million in general-obligation debt, its biggest such deal since June 2012, according to Lela Folse, director of the State Bond Commission. Part of it will fund the Morganza to the Gulf of Mexico project, a 98-mile earthen levee system by the U.S. Army Corps of Engineers.

“The restoration and maintenance of our coastline and major waterways is critical for our state’s economic future,” said Kristy Nichols, commissioner for the Division of Administration, in an e-mailed statement.

Louisiana is selling $347 million in tax-exempt securities with a final maturity in 2034 and $149 million in taxable bonds with the longest maturity in 2020, according to deal documents.

Besides the Morganza initiative, other flood protection programs include diverting surging waters from the Upper Comite River to the Mississippi River and building floodwalls along the west bank of the Mississippi, according to bond commission documents. Proceeds would also go to waterproofing the state capitol and widening highways.

Yield Premiums

Folse said the yield premiums on tax-exempt 10-year general-obligation securities sold last year have widened to 0.29 percentage points from 0.23 percentage points over top-rated munis.

A general-obligation bond issued in 2011 and due in 2024 traded Jan. 22 at an average yield of 2.32 percent, or 0.43 percentage points above benchmark securities, according to data compiled by Bloomberg.

After enduring Katrina and Rita, a second destructive hurricane in 2005, Louisiana “is better positioned to weather future storms and their potential impact on the state” because of levees rebuilt to a “higher standard,” Moody’s Investors Service said in a Feb. 7 report. The company rates the general obligations Aa2, third-highest.

Louisiana joins issuers offering about $3.2 billion in long-term debt this week, down from $4.7 billion in the preceding period. Individuals withdrew about $227 million from municipal-bond mutual funds in the week through Feb. 5, snapping a three-week streak of inflows, Lipper US Fund Flows data show.

Before it's here, it's on the Bloomberg Terminal.