NEW YORK, October 25 (Fitch) Fitch Ratings assigns an 'AA-' rating to $53.94
million Louisiana Transportation Authority (the authority) refunding bonds,
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
The Rating Outlook is Stable.
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.
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.
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
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
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