NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following State of Louisiana gasoline and fuels tax revenue bonds:
--$173 million gasoline and fuels tax revenue refunding bonds, 2013 series A;
--$303.125 million gasoline and fuels tax second lien revenue refunding bonds, 2013 series B (LIBOR Index) consisting of $200 million 2013 series B-1 (LIBOR Index) and $103.125 million 2013 series B-2 (LIBOR Index).
The bonds are scheduled to sell via negotiation on May 15, 2013.
In addition, Fitch affirms its 'AA-' rating on $1.8 billion in outstanding senior lien gasoline and fuels tax revenue bonds.
The Rating Outlook is Stable.
SECURITY
The bonds are special and limited obligations of the state of Louisiana payable from and secured by pledged gasoline and fuels taxes. The second lien bonds are payable after all payments have been made on the senior lien bonds.
KEY RATING DRIVERS
GENERALLY STABLE REVENUE STREAM WITH LIMITED GROWTH POTENTIAL: The bonds are secured by gasoline and motor and specials fuels tax revenues that have shown stability over time, with modest losses during the recession. However, Fitch believes the revenue stream has limited growth potential.
STRONG DEBT SERVICE COVERAGE: Debt service escalates annually through a long final bond maturity in 2045; however, coverage of combined senior and second lien maximum annual debt service (MADS) is strong. The closing of the senior lien in 2009 ensures that no additional debt will be issued to dilute senior coverage while authorization for additional second lien debt has lapsed.
VARIABLE-RATE RISK: About 55% of outstanding second lien debt is in the form of variable-rate obligations that have been synthetically fixed through floating- to fixed-rate swaps. Fitch believes that the limited related risk is manageable.
CAPITAL PROJECTS ARE A KEY INVESTMENT: The Transportation Infrastructure Model for Economic Development (TIMED) program is a key component of the state's transportation investment strategy.
RATING SENSITIVITIES
The rating is sensitive to the performance of pledged revenues and debt service coverage.
CREDIT PROFILE
The 'AA-' rating on both the senior and second lien bonds reflects the relative stability of pledged gasoline and fuels taxes, strong debt service coverage, and the importance of the TIMED program to the state's transportation investment strategy. The TIMED program was authorized by state statute in 1989. The program consisted of 16 projects: 539 miles of improved roadways along 11 highway corridors and three bridges throughout the state, as well as improvements at the Port of New Orleans and New Orleans International Airport. To date, 11 projects have been completed and three are currently in construction; the state now anticipates funding only 14 projects through this program and has invested $4.6 billion to date. TIMED revenues cannot be used for any other purpose except for TIMED bonds and construction.
The bonds are secured by gasoline and fuels taxes. Debt service on the bonds is first paid by revenues from $0.04 of the $0.20 per gallon tax on gasoline, motor fuels, and special fuels, known as the Act 16 taxes, dedicated to the TIMED program. The remaining $0.16 per gallon tax deposited into the transportation trust fund, after flowing through the state's bond security and redemption fund for the benefit of the state's GO bondholders, is also pledged. Senior lien bondholders receive priority of payment from the pledged revenues, followed by second lien bondholders. About 55% of second lien debt (18% of total program principal) has been issued in a variable-rate mode and synthetically fixed through floating- to fixed-rate swaps. Any payment required on hedge obligations associated with the second lien debt is considered third lien debt.
The TIMED program and the pledged revenue stream exhibited continued growth following hurricanes Katrina and Rita but were impacted by the recent economic downturn, with declines of 1.1%, 1.6%, and 0.4% in fiscal years (FY) 2008 through 2010, respectively. Pledged revenues grew 3.3% in FY 2011, above the average annual historical growth rate of 1%, but an unusual amount of large refunds in FY 2012 contributed to a reduction in pledged revenue of 5.3%. While the state forecasts 2.9% growth in the current fiscal year ending June 30, 2013, the trend of collections to date indicates revenues essentially flat to receipts from FY 2012. Fitch believes that growth prospects for the revenue stream are limited; when combined with escalating debt service requirements, this trend is expected to result in a declining, although still satisfactory, trend of debt service coverage.
The rating reflects the security provided by the forecast collection of total pledged taxes, as the Act 16 tax alone is insufficient to provide full coverage of prospective debt service requirements. Debt service coverage on senior lien debt by Act 16 taxes alone, $115 million received in FY 2012, has generally been strong on an annual basis, although escalating debt service requirements, slow growth in revenue, and large tax refunds lowered the coverage ratio to 1.15x. Total pledged taxes, $575 million in FY 2012, provided ample 5.77x coverage of senior and 4.25x coverage of combined debt obligations in FY 2012. Total fiscal 2012 pledged revenues provide comfortable 3.54x coverage of projected MADS in 2041 on senior obligations and 2.54x coverage of projected MADS in 2045 on the second lien bonds.
Fitch believes dilution of coverage ratios is limited by the closure of the senior lien in 2009 as well as an additional bonds test that requires that pledged revenues in the prior 24-month period, or for each prospective fiscal year, cover average annual debt service for the second lien bonds at least 2x. Also, the authorization for additional bond issues secured by the pledged revenues expired on Dec. 31, 2012. The state has indicated its intent to include the remaining TIMED projects in the state's highway priority program funded through the state and federal transportation fund.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790413
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