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The Alabama Economic Settlement Authority Issues $628.7 Million in Bonds Backed by Payments from BP Oil Settlement

December 2, 2016

MONTGOMERY – The Alabama Economic Settlement Authority met November 28, 2016 and approved the issuance of $628.7 million in bonds. This bond issue securitizes a series of payments by BP Exploration and Production, Inc. and its affiliates as part of a settlement with Alabama following the 2010 Deepwater Horizon oil spill. More than 3 million barrels of oil were spilled into the Gulf of Mexico which required the largest containment, cleanup and ongoing restoration effort in the history of the United States. In the midst of a recession, the oil spill devastated the fishing, both recreational and commercial, and tourism economies of Alabama and its coastal neighbors.

“Similar to when a lottery winner has to choose between a lifetime annuity or an upfront, lump-sum payment, we were essentially left with a choice between two options… continue to receive an annuity payment of $53 million annually for the next 16 years ($850 million total), or take a lump-sum distribution of $629 million today. We chose the latter option, primarily because it allows us to eliminate any credit risk associated with BP as well as protect against a rise in interest rates eroding the principal value,” said Alabama Finance Director Clinton Carter.

From the proceeds, $400 million will be used to repay funds borrowed in past years from the Alabama Trust Fund and the General Fund Rainy Day Fund, $120 million is designated for Alabama’s Medicaid Agency, and $80 million will be allocated to various transportation projects in Mobile and Baldwin Counties, with the remainder toward carried interest cost during the first two years of the securitization period.

“These BP settlement funds will allow the State to repay the funds previously drawn from the Alabama Trust Fund, address immediate needs at Medicaid and begin revitalizing the transportation infrastructure in our coastal counties,” said Alabama State Treasurer Young Boozer.

Alabama’s securitization of the BP Settlement is one of three recent bond transactions by the State Finance Department, following the $270.8 million issuance of Grant Anticipation Revenue Vehicles (GARVEE) Bonds in November 2016 along with a refinancing of $230.3 million of General Obligation bonds in October 2016.


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