Tobacco Settlement Option March 17, 2015 Role of TSFC o In 2001, the Legislature established the TSFC to eliminate risks related to the master settlement agreement by issuing bonds that could be sold and invested in the Millennium Trust and Louisiana Fund. o RS 39:99.2: “The legislature finds and declares it to be prudent and in the best interest of the state of Louisiana to employ such financing techniques…” 2 Current Cash Flow State 40% 25 % 75 % Louisiana Fund TOPS Fund within the Millennium Fund TSFC Series 2013A Bonds Debt Service - 60% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $104 3 $130 $137 $156 $131 $142 $144 $132 $137 $161 $176 $147 $139 $141 $210* $141 *Includes one-time settlement Tobacco Settlement Risks o Excise tax increase o E-cigarettes and other alternatives o Consolidation among tobacco companies o Tobacco consumption decline o Possible FDA menthol ban (31% of market) 4 Federal Excise Tax $1.95 ? $1.01 $1.01 $20M $0.39 2009 2015 Current Market Conditions are Highly Favorable Credit Spreads Tightened1 30 Year MMD Trailing 12 Months 30-year MMD has declined by 110 bps % of Time MMD has been Lower Since 1986 3 Option Assigning the remaining 40% of TFC revenue to TSFC could generate $100 million per year for TOPS for 7-8 years – a net increase of approximately $60 million during these years. Increas e to TOPS* Year 6 40% 60% $60M $60M $60M $60M $60M $60M $60M $60M $60M 2015 2016 2017 2018 2019 2020 2021 2022 2023 *Assuming current conditions continue In the 9th year, the original bonds will be paid off and the state will again receive 60 percent of the original TSR (based on 2013 projections w/out risk) Program Benefits Long-term hedging and revenue-use strategy Generate additional revenue for TOPS during this period of time Protect higher education GOAL: To allow the Legislature to consider this option for creating revenue for TOPS 7 Timeline March 17 8 April 16 May 20 JLCB TSFC files Bond application commission with SBC approval requesting request approval request Post-May Late May Early June Mid-June 21 Legislative TSFC TSFC sells Pre-closing approval approval bonds and closing request request for final resolution with bond structure per Legislative approval 2013 Refinance In July 2013, the State refunded the bonds associated with 60 percent of tobacco revenues to save $70 million in interest. After an extensive selection and evaluation process, we selected the following professionals to assist with the refinance. Co-bond counsel Financial advisor Senior underwriter Foley & Judell and Hawkins Delafield and Wood Public Resource Advisory Group, Inc. (PRAG) Citigroup 5 bids 3 bids 8 bids Selected based on experience with 2001 bond, low cost and highest score in presentation 9 Selected based on Selected based on experience with experience, high tobacco, low cost and scores in presentation qualifications and low cost Next steps o Resolution 1 Continues the engagement with PRAG as municipal finance advisor to represent the corporation in the sale o Resolution 2 Gives preliminary approval to move forward on the bond sale with the team of professionals used for the series 2013A bonds 10