NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following State of Louisiana gasoline and fuels tax revenue bonds:
--$73.06 million gasoline and fuels tax second lien revenue refunding bonds, 2013 series C.
The bonds are scheduled to sell via negotiation the week of Oct. 14, 2013.
In addition, Fitch affirms the following outstanding ratings:
--$1.8 billion in outstanding senior lien gasoline and fuels tax revenue bonds at 'AA-';
--$303 million in outstanding second lien 2013 series B-1 and series B-2 gasoline and fuels tax revenue bonds at 'AA-'.
The Rating Outlook is Stable.
SECURITY
The second lien bonds are special and limited obligations of the state of Louisiana payable from and secured by pledged gasoline and fuels taxes on a subordinate basis to the senior lien bonds.
KEY RATING DRIVERS
GENERALLY STABLE REVENUE STREAM WITH LIMITED GROWTH POTENTIAL: The bonds are secured by gasoline and motor and special 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 WILL BE MINIMIZED: The current fixed-rate issue of second lien debt refunds the outstanding 2009 series A-4 variable rate bonds and terminates an associated floating- to-fixed-rate swap. Variable rate debt as a percentage of total debt is expected to decline further later in the fiscal year as additional variable rate debt is refunded and fixed out.
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 current issue refunds the outstanding 2009 series A-4 bonds and terminates the related interest rate swap agreement for a net present value loss due to an associated swap termination payment. Following the current issue, about $424 million (16% of total par) in variable rate debt will remain outstanding. The state anticipates remarketing or refunding the outstanding $121.25 million 2009 series A-3 variable rate bonds prior to their mandatory tender date of May 1, 2014.
SOLID DEBT SERVICE COVERAGE
The bonds are secured by gasoline and fuels taxes. Debt service on the bonds is first paid by revenues from $0.04 of the state's $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. Following the current issue, about 48% of second lien debt (16% of total program principal) will be 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 in 2005 but were affected 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%. Pledged revenues are estimated to have grown 1.1% in the fiscal year ending June 30, 2013 from FY 2012; however, the growth is from the reduced FY 2012 base and reflects stagnancy in the revenue source. The state forecasts a 1% decline in the current fiscal year, although positively, year-over-year growth in pledged revenues has been recorded through August 2013. 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. Act 16 tax collections of $116 million are estimated for FY 2013, providing 1.25x annual coverage of senior lien debt service in that year. Total estimated pledged revenues, $581 million in FY 2013, provided ample 6.23x coverage of senior and 4.54x coverage of combined debt obligations. Total fiscal 2013 pledged revenues provided comfortable 3.58x coverage of projected MADS in 2041 on senior obligations and 2.56x coverage of projected MADS in 2043 on combined senior and 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'.
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=803915
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