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10 Oct 2018
New York, October 10, 2018 -- Moody's Investors Service has assigned an A2 rating to $21.795 million of Refunding Revenue Bonds (Millennium Housing, L.L.C. Student Housing and Auxiliary Facilities Project) Series 2018 issued by the Louisiana Public Facilities Authority. The bonds are expected to price the week of October 22. The outlook is stable.
The A2 rating is notched off the state of Louisiana's Aa3 rating based on the legal commitment of the state's Division of Administration to request appropriation by the legislature of amounts sufficient to replace draws on a debt service reserve fund, pursuant to a cooperative endeavor agreement among the DOA, the Southern University Board of Supervisors, and Millennium LLC, a special purpose vehicle that leases the funded facilities to the Board. The rating reflects the strong legal structure of this transaction, including the mechanics of debt service reserve replenishment, the need for appropriation by the state, the specialized nature of the facilities originally funded, and the essentiality of the Southern University System to the state.
Louisiana's 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 bonds carry the state's stable outlook. The 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
-State rating upgrade
FACTORS THAT COULD LEAD TO A DOWNGRADE
-State rating downgrade
-Failure of the state legislature to appropriate sufficient funds to replenish the debt service reserve fund when requested to do so by the state Division of Administration
The refunding bonds are secured by lease rental payments made by the Southern University Board of Supervisors directly to the trustee pursuant to a lease between the Board and Millennium LLC, a special purpose vehicle created by the Southern University Foundation to facilitate the original project in 2006. In the event of a missed debt service payment, the state Division of Administration has agreed in a Cooperative Endeavor Agreement with the Board and the LLC to request legislative appropriation of amounts sufficient to replenish the MADS-funded debt service reserve fund. The CEA is legally binding and failure by the division to make such a request is considered an event of default, although failure of the legislature to appropriate is not an event of default. We consider the mechanics of the debt service replenishment process to be strong, as full MADS funding of the reserve affords ample time for the legislature to appropriate funds within the state's normal budget adoption process, given debt service payment dates of May 1 and November 1.
USE OF PROCEEDS
The proceeds of the bonds will be used to refund the LPFA's outstanding Revenue Bonds (Millennium Housing, L.L.C. Student Housing and Auxiliary Facilities Project) Series 2006.
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.
Southern is a historically black college and university system comprised of four campuses in Baton Rouge, Shreveport and New Orleans. The Baton Rouge and New Orleans campuses are four-year public university campuses and the Shreveport campus is a two year campus. The system generated nearly $200 million of operating revenue in FY 2015.
The principal methodology used in these ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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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