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April 13, 2018  

Louisiana Poised to Securitize BP Settlement

Louisiana plans to securitize a portion of the proceeds from a settlement with BP over the Deepwater Horizon oil spill.

Under a bill the state Senate is set to pass in the coming days, a newly created agency called Louisiana Economic Financing Corp. would issue $852 million of bonds backed by cashflows from the $6.8 billion settlement. The transaction is expected to hit the market late this year or early next year.

Among the first orders of business for the agency will be to issue a request for proposals from prospective underwriters. Banks likely to jockey for the assignment include Citigroup, Goldman Sachs and Morgan Stanley. Proceeds from the bond sale would be earmarked for transportation projects.

Bondholder cashflows would be supported by a portion of the settlement under which BP is required to pay $1 billion over 15 years for economic damages. Separately, the oil company is paying the state $5 billion for damages to natural resources and nearly $800 million for additional penalties.

In 2010, an explosion aboard the Deepwater Horizon oil rig in the Gulf of Mexico killed 11 crew members and spilled 3 million barrels of oil, fouling hundreds of miles of coastline. BP has agreed to pay a total of $21 billion to five states and the federal government to settle environmental- and economic-damage claims. Alabama was the first of the states to securitize its settlement proceeds, issuing $628.7 million of bonds in December 2016 via underwriter Morgan Stanley.

Asset-backed bond investors are familiar with Louisiana as an issuer, thanks to a series of utility-fee securitizations the state has brought to market since 2008. Most recently, the Louisiana Local Government Environmental Facilities and Community Development Authority sold $314.9 million of bonds in 2014, with Citi running the books. The deal was rated by Moody’s and S&P.