ATLANTA -- The Oklahoma Turnpike Authority's plan to sell $650 million of bonds to refund all of its outstanding debt was stopped Tuesday by the state Legislative Bond Oversight Commission.

The proposal died on 2-to-2 vote of the commission, as Sen. Stratton Taylor, D-Claremore, and Rep. Jim Hamilton, D-Poteau, remained unconvinced that the deal generates sufficient savings, Sen. Taylor said yesterday. Under Oklahoma law, state bond sales cannot move forward unless they get separate majority approval from the Legislative Bond Oversight Commission and its companion oversight agency, the Executive Bond Oversight Commission.

"I was concerned, as was Rep. Hamilton, about the low present-value savings under the turnpike authority proposal," Sen. Taylor said. "As I understand the proposal, those savings would be about 2% -- whereas 3% to 6% would seem a more appropriate target," he said.

Sen. Taylor said he was also troubled that the authority had left itself the option of selling a portion of the refunding as variable-rate debt, for which a definite calculation of present-value savings is impossible. Present value savings are typically achieved when an issuer takes advantage of a decline in interest rates to pay off previously issued high-coupon debt using the proceeds from a bond issue carrying a lower rate.

As proposed by the turnpike authority, the deal would have refunded all of the authority's unrefunded debt, for a present value savings of about $12 million, or 2% of the transaction, according to Ronald K. Mason, the turnpike authority's chief financial officer.

Mr. Mason said the authority does not dispute the desirability of present-value savings higher than 2%, but feels that it should been given the option to sell refunding bonds with interest rates at what may be now historic lows.

"Sure we would like to have present value savings of 6%, but remember a lot of the bonds we would refund were sold in 1989, when interest rates were also low," he said. "Selling now may be the best deal we can get for a long time."

In addition to allowing the authority to realize what may be the highest level of present-value savings actually achievable, the proposed refunding presents other important advantages, Mr. Mason said.

In particular, he said, refinancing all the turnpike's outstanding bonds would release the authority from "extremely restrictive" indentures on existing debt that limits reinvestment of bond proceeds. Under the current indentures, the authority cannot reinvest in securities that mature in more than three years. The refunding would extend that to seven years, allowing a yield pickups of up to 200 basis points, he said. The authority also wants to reduce the deposits required to the Turnpike Trust Fund, a backup debt reserve fund, Mr. Mason said.

"Frankly, I'm surprised and a bit disappointed at the commission's action," Mr. Mason said. "We could achieve higher present value savings by going forward with a partial refunding, but then we would give up the advantages of the total refunding."

James Joseph, Oklahoma's bond adviser, also said he was disappointed with the commission's response to the turnpike bond proposal. "We were confident of the public benefits of the proposal and recommended approval," Mr. Joseph said. "I still hope something can be worked out to take advantage of the low level of interest rates -- but if [the refunding] doesn't get done by this summer, "I'm afraid it's not going to get done at all," he said.

Mr. Mason said the turnpike authority has not decided whether to submit a new proposal at the next scheduled meeting date for the commission, which takes place Jan. 30. But he said authority officials are willing to talk with the members of the commission in order to more fully understand their objections.

Rep. Taylor said he was also willing to talk over his objections, but does not expect that a refashioned proposal could be put together in time for reconsideration at the January meeting.

Rep. Taylor said the two other members of the legislative commission that were present at Tuesday's meeting, Rep. Don McCorkell Jr., D-Tulsa, and Rep. Jesse Pilgrim, D-Cushing, voted for the proposal.

In its vote, the Executive Bond Oversight Commission approved the refunding by a two-to one margin, with Lieut. Gov. Jack Mildren voting against, and Greg Main, director of the state's commerce department, and Bill Camps, Governor David Walter's appointee, favoring the proposal, said Kevin Nelson, an aide to Mr. Mildren.

"The lieutenant governor felt that there were enough questions raised that it would be better to explore those questions rather than moving forward with the transaction at this time," Mr. Nelson said. "He felt there has to be a process where the turnpike authority and the legislators work together."

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