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02 Jul 2018
New York, July 02, 2018 -- Moody's Investors Service has affirmed the Aa3 on the state of Louisiana's outstanding state general obligation bonds and changed the outlook to stable from negative. The Lease appropriation Custodial Receipts, New Orleans Federal Alliance Project bonds, Capitol Complex Program bonds, Economic Development Project bonds, 1-49 North Project & 1-49 South Project bonds, Hurricane Recovery Program bonds and the Tollroad Refunding Bonds have been affirmed at A1. The Lease appropriation Delta Community College Project bonds, LCTCS Facilities Corporation Project bonds, BRCC Facilities Corporation Project bonds and the South Louisiana Facilities Corporation Project bonds have been affirmed at A2. Concurrently, Moody's has affirmed the Aa2 rating on Louisiana Gas and Fuels Tax senior lien bonds, the Aa3 on the Louisiana Gas and Fuels Tax subordinate lien bonds, and the A1 rating on the State Highway Improvement Fund bonds. The outlook on all the bonds listed above has been changed to stable from negative.
The Aa3 general obligation rating reflects the state's large and diverse tax base, moderate combined debt and pension burden and adherence to certain financial best practices. The rating is lower than the average state rating because it also reflects the state's financial and economic strain stemming from the volatility in the energy sector, the difficulty the state has had crafting solutions to large structural budget gaps, and the cumulative effects of years of structural imbalance on the state's reserves and liquidity.
The A1 rating on certain appropriation bonds are one notch off the state GO rating, reflecting the essentiality of the funded projects to state government and strong legal security. Four lease transactions are rated A2 and are structured as lease payments made by the state to the trustee under cooperative endeavor agreements, subject to appropriation. While benefiting from the essentiality of projects financed, the strength of the state's appropriation pledge and its history of fulfilling commitments under CEAs, these transactions are structured with greater complexity and involve nonprofit entities in lease arrangements. This somewhat weakens the legal structure by introducing potential risk related the community colleges whose projects the transactions finance, warranting an additional notch off the state rating. The nonprofits are limited in purpose and each is controlled by the community college it benefits.
The Aa2 rating on the Gas and Fuels Tax senior lien bonds, the Aa3 rating on the Gas and Fuels Tax subordinate lien bonds, and the A1 rating on the State Highway Improvement Fund Bonds reflect the credit strength of these bonds based on their respective special tax pledges, as well as their link to the financial and economic condition of the state. Their ratings are linked to the state's GO rating and carry the state's outlook.
The stable outlook reflects recent stabilization of the state's economic base and recurring, albeit time-limited, solutions to large structural budget gaps. We expect the state to continue to balance its budget with a preponderance of recurring actions but do not anticipate significant near- or medium-term improvements in its reserves, which will continue to fall short of a cushion commensurate with a volatile economic base.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Long term growth and diversification of the state economy that offsets the volatility of the energy sector
- Sustained trend of structural budget balance
- Significant increase in budgetary reserves
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Inability 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
The GO bonds are general obligations of the State of Louisiana and are backed by the state's full faith and credit. Lease bonds are backed by cooperative endeavor agreements making debt service payments subject to annual legislative appropriation. Special tax bonds are backed by pledges of certain gas and fuels taxes (Gas and Fuels Tax bonds) or vehicle registration fees and taxes on trucks and trailers (State Highway Improvement Fund bonds).
Louisiana is the 25th largest state by population, at 4.6 million. Its state gross domestic product is 34th largest. The state's has below average wealth, with 2016 per capita personal income equal to 88% of the US level and the third highest poverty rate among states.
The principal methodology used in the general obligation rating was US States and Territories published in April 2018. The principal methodology used in the lease rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. The principal methodology used in the special tax rating was US Public Finance Special Tax Methodology published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to
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for additional regulatory disclosures for each credit rating.
Marcia Van Wagner
Moody's Investors Service, Inc.
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