Market turmoil forces New Mexico to make bond change
The revision will mean a slightly higher interest rate on $50 million in bonds that expire in 2024, and will require the state Transportation Department to pay about $78,000 in additional yearly debt service payments.
By BARRY MASSEY
The Associated Press
9/30/2008
SANTA FE — The bankruptcy of investment bank Lehman Brothers has forced a change in a bond financing arrangement for part of New Mexico’s nearly $1.6 billion transportation construction program.
The revision will mean a slightly higher interest rate on $50 million in bonds that expire in 2024, and will require the state Transportation Department to pay about $78,000 in additional yearly debt service payments.
The state Board of Finance approved the new financial arrangement Monday. Governmental bond issuers across the country are scrambling to make similar changes in so-called interest rate swaps they had with Lehman Brothers Derivative Products.
The New Mexico Finance Authority issues bonds and provides bond management services to the department for the administration’s highway construction program, which was called GRIP — Governor Richardson’s Investment Partnership.
Lehman was the interest rate swap provider for $50 million in bonds, which were part of a large GRIP financing program assembled in 2004 by NMFA. The swap transaction provided a more favorable interest rate for the long-term bond deal. Under the swap, NMFA exchanged a flow of fixed interest rate payments for a stream of floating rate interest payments from Lehman.
However, the agreement was terminated because of last month’s Chapter 11 bankruptcy protection filing by Lehman Brothers Holdings Inc., the investment bank’s holding company.
On Monday, the Board of Finance approved a replacement swap provider, Germany’s Deutsche Bank. The NMFA board of directors approved the deal last week.
Under the new agreement, Deutsche Bank will pay the $4.5 million that NMFA owed Lehman under terms of the interest rate swap being terminated.
The Transportation Department had debt service payments of $163 million on the GRIP bonding program in the 2008 fiscal year, which ended in June, and payments of $159 million the previous year, according to NMFA.