Fitch rates Louisiana Transportation Authority bonds 'AA-'

Reuters

NEW YORK, October 25 (Fitch) Fitch Ratings assigns an 'AA-' rating to $53.94

million Louisiana Transportation Authority (the authority) refunding bonds,

series 2013A.

The bonds are expected to sell via negotiation on Nov. 7, 2013.

In addition, Fitch affirms the following ratings:

--Approximately $2.5 billion in outstanding Louisiana general obligation (GO)

bonds at 'AA';

--Approximately $515 million in outstanding Louisiana appropriation-backed bonds

at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are special obligations of the authority (a public corporation housed

within the state department of transportation and development ). Bonds are

payable solely from payments received by the authority from annual state

legislative appropriations pursuant to a cooperative endeavor agreement (CEA).

KEY RATING DRIVERS

STATE APPROPRIATION: The rating on the bonds is based on the credit quality of

the state of Louisiana (GO bond rating of 'AA') as bonds are secured by annual

legislative appropriations from the general fund, pursuant to a CEA between the

state and the authority.

COMMODITY-BASED ECONOMY: The state's commodity-based, cyclical economy, heavily

linked to oil and gas production, has modestly diversified, although one-third

of the state's gross state product continues to derive from the production and

delivery of raw and intermediate goods.

FINANCIAL OPERATIONS HAVE BEEN CHALLENGED: Financial operations in recent years

have been characterized by revenue shortfalls and increasing education and

Medicaid expenses. To the state's credit, required budgetary reductions, often

large and at mid-year, have been executed to achieve balance. Fiscal year 2013

is estimated to have ended with an operating surplus.

MODERATE DEBT SUPPORTED BY STRONG GO LEGAL PROVISIONS: Debt levels are moderate

and debt issuance is well controlled by policy. There are strong legal

provisions for GO debt, with all non-dedicated revenues flowing into the bond

security and redemption fund to provide for debt service prior to operations.

HIGH UNFUNDED LIABILITIES: Funding of the state's two largest pension systems is

below average and has been declining; the combined burden of debt and pensions

is well above the median for U.S. states rated by Fitch. The state's modest,

recently implemented reforms to improve its unfunded liability position have

been ruled unconstitutional on procedural grounds.

RATING SENSITIVITIES

The rating is sensitive to shifts in the state's GO bond rating, to which it is

linked. Fundamental credit characteristics that are incorporated in the state's

'AA' GO bond rating include a record of timely action to maintain budget balance

and a commodity-based economy.

CREDIT PROFILE

The 'AA-' rating for the series 2013A bonds reflects the authorization for the

debt by Louisiana's constitution and the legal provisions included in the CEA

between the authority and the state, providing for the state's pledge of annual

appropriations to fund debt service payments. The current series 2013A bond

issue, together with no more than $122 million of bonds to be privately placed

with the U.S. department of transportation through a federal Transportation

Infrastructure Finance and Innovation Act (TIFIA) loan, will refund all

outstanding authority debt issued for its LA1 project in 2005. The authority's

series 2005A and 2005B bonds are currently rated 'BBB' by Fitch and the

authority's outstanding TIFIA loan is rated 'CCC' by Fitch. The series 2005A and

2005B (1st Tier) bonds have benefited from the state's commitment to replenish

draws on the 1st Tier debt service reserve fund through a 2005 CEA, improving

otherwise weak project fundamentals that are reflected in the 2005 TIFIA loan

rating. Due to the underperformance of pledged toll revenues for the 2005 bonds,

absent the current refunding, the TIFIA loan would be expected to default in

December 2013.

Louisiana's 'AA' GO rating reflects the state's focus on spending control and an

economy that, while heavily reliant on natural resources and the volatile energy

industry, has shown steady growth since the recession. The rating also considers

the strong legal provisions for GO debt, with all non-dedicated revenues flowing

into the bond security and redemption fund to provide first for debt service.

However, financial operations are narrowly balanced and while state debt levels

remain moderate, the funding levels for the state's two largest pension systems

are below average and related pension obligation levels are well above average.

NARROWLY BALANCED FINANCIAL OPERATIONS

Despite the state's economic recovery, financial operations in recent years have

been challenged by repeated revenue underperformance and forecast budget gaps,

which the state has closed through both structural and non-recurring actions.Tax-Supported Rating CriteriaAdditional Disclosure

Solicitation StatusALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.

PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:

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DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S

PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND

METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF

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AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF

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SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS

SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED

ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH

WEBSITE.

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