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Louisiana (State of) -- Moody's revises Louisiana's outlook to positive for GO, appropriation and state highway improvement bonds; affirms all outstanding ratings

·16 min read

Rating Action: Moody's revises Louisiana's outlook to positive for GO, appropriation and state highway improvement bonds; affirms all outstanding ratingsGlobal Credit Research - 12 Feb 2021New York, February 12, 2021 -- Moody's Investors Service has affirmed the Aa3 on the State of Louisiana's outstanding general obligation bonds. It has affirmed at A1 the ratings on the lease appropriation Custodial Receipts, New Orleans Federal Alliance Project bonds, Capitol Complex Program bonds, I-49 North Project & I-49 South Project (Unclaimed Property Special Revenue) bonds, Hurricane Recovery Program bonds and the Tollroad Refunding bonds. Moody's also affirmed at A2 the lease appropriation LCTCS Facilities Corporation Project bonds, BRCC Facilities Corporation Project bonds, Millennium Housing L.L.C. bonds, and the South Louisiana Facilities Corporation Project bonds. Moody's affirmed at A1 the state's tax-backed State Highway Improvement Revenue Bonds and revised the rating outlook of the general obligation, lease and State Highway Improvement Revenue Bonds to positive from stable. Concurrently, Moody's affirmed the Aa2 and Aa3 ratings on the state's Gas and Fuels Tax bonds. The rating outlook on the Gasoline and Fuels Tax bonds is stable.RATINGS RATIONALEThe Aa3 general obligation (GO) rating reflects the state's large and diverse tax base and moderate combined debt and pension burden. The rating is lower than most state ratings because it also reflects the state's vulnerability to the volatility in the energy sector and its exposure to social risks, including slow population growth, low per capita personal income and a low labor force participation rate, and its above-average exposure to environmental risk, particularly hurricanes and flooding.The A1 ratings on certain appropriation bonds are one notch below the state GO rating, reflecting the essentiality of the funded projects to state government and moderate legal security. Remaining lease appropriation transactions are rated A2, reflecting the essentiality of projects financed and the greater complexity of transactions that involve nonprofit entities in lease arrangements, weakening the legal security.The A1 rating for the State Highway Improvement Revenue Bonds is based on strong legal protections to bondholders and the narrow nature of the state's truck and trailer registration fee revenues.The Aa2 rating on the Gasoline and Fuels Tax First Lien revenue bonds reflects strong legal provisions that include constitutional protections of revenues for transportation purposes, no appropriation risk and healthy current coverage by pledged revenues. The senior lien on pledged revenues is closed.The Aa3 rating on the Gasoline and Fuels Tax Second Lien Revenue bonds is supported by the same strong legal provisions as the First Lien Bonds, offset by greater exposure in the flow of funds to the requirement that a portion of the pledged revenues must first flow through the state's Bond Security and Redemption Fund. The transportation-related revenues pledged to the First and Second Lien Revenue bonds are tied to the energy-dependent state's volatile economy and its financial condition.The current coronavirus epidemic constitutes a social risk under our ESG framework, given the substantial implications for public health and safety. The longer term impact will depend on both the severity and duration of the crisis. We do not see any material immediate credit risks for Louisiana at this time, but the situation is evolving.RATING OUTLOOKLouisiana's positive outlook reflects the significant progress the state has made restoring its financial reserves and liquidity in recent years by aligning revenue and spending in a post-energy boom era, rebuilding borrowable funds and generating budgetary surpluses in consecutive years. We expect that the state, through careful fiscal management and with the help of federal stimulus aid, will be able to sustain its progress despite the impacts of the coronavirus. The state's recovery, however, depends in part on the economic recovery of New Orleans (A2 stable), the state's largest city and a popular tourism destination.The positive outlook on the State Highway Improvement Fund bonds reflects their improved revenue stability in recent years and expected resilience as the effects of the pandemic abate.The stable rating outlook on the Gas and Fuels Tax bonds reflects our expectation that revenue trends will continue to provide adequate and stable coverage of debt service.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- For general obligation debt:- Long term growth in line with the US rate and diversification of the state economy that offsets the volatility of the energy sector- Sustained trend of structural budget balance with continued strengthening of reserves and liquidity- Changes in state, legal and institutional structure to promote greater financial flexibility- For appropriation-backed debt:- Upgrade of state GO rating- For State Highway Improvement debt:- Sustained coverage levels through the ongoing uncertainty created by the coronavirus pandemic- For Gasoline and Fuels Tax debt:- Upgrade of state general obligation rating combined with increase in coverage of debt service by revenuesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- For general obligation debt:- Failure to balance budgets with preponderance of recurring actions leading to liquidity drain and shrinking budgetary reserves- Prolonged deterioration of key economic indicators, including population, employment and income- For appropriation-backed debt:- Downgrade of state GO rating or indications of a weakening commitment to timely legislative debt service appropriations- For State Highway Improvement debt:- Deteriorating coverage of debt service by pledged revenue- For Gasoline and Fuels Tax debt:- Downgrade of state general obligation rating or unfavorable revenue trendsLEGAL SECURITYGeneral obligation bonds are secured by the full faith and credit of the state of Louisiana.Lease appropriation bonds are secured by cooperative endeavor agreements making debt service payments subject to annual legislative appropriation.Special tax State Highway Improvement Fund bonds are secured by an irrevocable pledge of statewide collections of truck and trailer licensing fees and taxes, which are not subject to legislative appropriation.Special tax Gasoline and Fuels Tax bonds are secured by constitutionally protected pledge of a tax on gas, motor and special fuels.PROFILELouisiana is the 25th-largest state by population, at 4.7 million. Its state gross domestic product is 24th largest. The state has below-average wealth, with 2018 per capita personal income equal to 85% of the US level and the highest poverty rate among states.METHODOLOGYThe principal methodology used in the general obligation ratings was US States and Territories published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1084466. The principal methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260202. The principal methodology used in the special tax ratings was US Public Finance Special Tax Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260087. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Marcia Van Wagner Lead Analyst State Ratings Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Timothy Blake Additional Contact Municipal Supported Products JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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