LSU bond buyers presented insolvency plan

Investors who bought $114 million of debt sold by Louisiana State University on Wednesday were warned about the state’s fiscal struggles.

What they weren’t explicitly told in bond offering documents was that the school was considering filing for exigency.

Officials at the Baton Rouge-based school said Thursday they plan to draw up a financial exigency plan, equivalent to college bankruptcy, in the wake of $608 million in budget cuts proposed by Governor Bobby Jindal.

For those who analyzed offering documents, the first item listed under bondholders’ risks now takes on added meaning.

“The ability of the university to make principal and interest payments on the series 2015 bonds is indirectly contingent upon sufficient annual state appropriations to continue the operations of the university,” it reads.

Yet the word “exigency” doesn’t appear in the 204page document dated April 13.

Exigency, declared when schools face insolvency, would allow Louisiana’s flagship school to restructure and fire tenured faculty.

“It’s bad form, if nothing else,” said Bart Mosley, copresident of Trident Municipal Research in New York.

“Obviously for LSU’s financial structure, the state budgeting situation is a risk factor.

“The question this is going to come down to is how well were potential bond purchasers informed.”

In an e-mail, Ernie Ballard, a Louisiana State spokesman, said: “The buyers were aware of the current situation.”

The university “is exploring a wide range of contingency plans, one of which would be filing for exigency if solutions to the projected shortfall are not found,” he said.