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Bond Refinancing to Save Nearly $18 Million

From the Office of Governor Robert Bentley

MONTGOMERY – The Alabama 21st Century Authority has successfully completed the refinancing of $102 million of outstanding Tobacco Settlement Revenue Bonds issued in 2000 and 2001.  The bond refinancing is expected to result in savings of more than $17.9 million over the remaining 10-year life of the bonds.

Due to a very favorable interest rate environment, exceptionally low overall leverage and an A/Stable credit rating, the bonds sold well inside initial expectations.  The original bond’s interest rate of 4.82% will be replaced with an average true interest cost of 2.47% for the new issuance.  Citigroup; Sterne, Agee & Leach; Frazer Lanier Company and Kipling Jones & Co. were the syndicate of investment banks which underwrote the bonds.

As a result of the transaction, Standard & Poor’s upgraded the Authority’s debt to an “A” rating, the highest rating of any tobacco settlement bond in the country.

State Revenue Commissioner Julie Magee praised the sale.

“This refinancing will greatly benefit the people of Alabama and each of the agencies receiving funding through the 21st Century Authority,” Magee said.  “Given the dire economic climate that we’re currently enduring, the timing of the savings could not be more opportune.”

The Tobacco Bonds were issued in 2000 and 2001 for economic development and industrial recruitment as well as for the benefit of the Children’s First Trust Fund, Senior Services, Medicaid and the State General Fund.

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The refinancing will result in present value interest rate savings totaling $16.4 million, or approximately 16.1% of the outstanding balance of the bonds.  All of the savings will be passed along to the 21st Century Authority through lower annual debt service.  The cash flow savings will be $9.65 million during 2012 and $8.21 million in 2013.

“The State has been able to complete this refinancing because of the very conservative balance sheet we maintain.  We are committed to finding savings for taxpayers wherever we can,” Alabama Finance Director Dr. Marquita Davis said.  “The structure of this sale was very unique in that we chose not to maximize potential leverage, but rather to refinance for savings and to hold maturity dates constant.”


Written By

Robert Bentley is the former governor of the state of Alabama.