Fitch Affirms Morial New Orleans Exhibition Hall Authority (LA) Bonds at 'A+'/'A'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)--During the course of routine surveillance, Fitch Ratings has taken the following action on the Ernest N. Morial New Orleans Exhibition Hall Authority, Lousiana:

--$75.9 million special tax bonds outstanding affirmed at 'A+';

--$91.6 million senior subordinate special tax refunding bonds, series 2004 affirmed at 'A'

The Rating Outlook is Stable.

RATING RATIONALE:

--Pledged revenue collections continue to improve, despite the 2010 Gulf of Mexico oil spill and lingering recessionary influences; as a result, debt service coverage continues to strengthen.

--The authority maintains substantial liquidity, which serves as both a buffer against unforeseen revenue declines and a resource for capital spending.

--Attendance at area conventions, including those held at the Morial Convention Center (MCCNO) still has not recovered to pre-Katrina levels.

--Annual debt service payments will increase in 2012 by nearly $2.7 million as repayment of the 2007 Gulf Opportunity Zone Act (GO Zone) loan begins; while some discussion has occurred regarding forgiveness of these loans that were made to local New Orleans area governments, no action has been taken to date.

--The New Orleans economic recovery continues, as evidenced by ongoing population gains, noteworthy construction projects, residential rebuilding efforts, and increased tourism traffic.

--The U.S. Corps of Engineers recently announced completion of hurricane protection projects that reportedly will protect New Orleans from hundred-year storm forces (up to Category 3 hurricanes).

KEY RATING DRIVERS:

--Continued strengthening of the national economy and loosening of convention and travel budgets will need to occur before convention attendance approaches pre-2005 levels.

--Any softening in the economy and corresponding dip in tourism-based revenues likely will not substantially impair debt service coverage, even with the increased annual payments associated with the GO Zone Act debt.

SECURITY:

The senior lien and senior subordinate lien special tax bonds are secured by hotel occupancy, food and beverage, and service contractor and tour taxes collected within Orleans Parish, and by a $2 million annual appropriation by the state legislature from the state's sales tax on hotel occupancy in New Orleans.

CREDIT SUMMARY:

Authority debt is supported primarily from hotel and motel occupancy tax revenues, as well as food and beverage taxes, sightseeing and contractor services fees, and an annual state appropriation. The 2007 defeasance of $293 million in bonds (due to a cancelled facility expansion project) has generated significantly improved debt serve coverage levels. Maximum annual debt service (MADS) coverage on all remaining debt, using 2010 tax revenues, is roughly 2.1 times (x); stress scenarios that reduce revenues by as much as 25% and 40% still generate satisfactory coverage. This coverage calculation includes amortization of more than $28 million GO Zone Act loan proceeds that were secured from the state to make debt service payments in 2007 and 2008; these funds are scheduled to be repaid beginning in 2012. The authority notes that it has no near-term borrowing plans, and will finance ongoing capital needs with available resources.

With tourist and convention traffic increasing in the years following Hurricane Katrina, authority tax revenues have been gradually approaching pre-storm levels. Total revenues increased in three of the past four years, with a recessionary dip of more than 3% in 2009 the only exception. Revenues climbed 16% in 2010 to $38.2 million, or 92% of the peak of $41.5 million collected in 2004. This gain occurred despite an anticipated drop in tourism activity due to the April 2010 Gulf of Mexico oil spill. The authority budgeted 2011 revenues from its two largest sources - a hotel occupancy tax and food and beverage taxes - conservatively at 82% and 87%, respectively, of 2004 (pre-Katrina) totals. Management reports that year-to-date tax collections from these two sources are coming in roughly 10% ahead of budget projections. Fitch also notes as a credit strength the authority's robust level of available reserves. These reserves, which have been increasing steadily since 2005, totaled $150 million at Dec. 31, 2010. The authority plans to utilize some reserves over the near term to make various improvements to the facility. While the number of shows at the MCCNO now approximate pre-Katrina levels, the shows are typically smaller and draw fewer attendees; annual attendance in 2010 was less than 465,000, compared to 600,000 - 800,000 reported annually prior to 2005. Management notes the planned facility improvements are expected to appeal to smaller shows (which they believe have been underserved in the New Orleans market), which hopefully will generate additional business from this segment of the market.

On a broader note, the city's recovery from Hurricane Katrina continues. The U. S. Census Bureau reported the city's 2010 population at roughly 344,000, or about 75% of the pre-storm total. While employment levels in the metropolitan area have shown gains since 2006, they remain about 30% below pre-storm totals. The latest city unemployment rate of 8.4% (April, 2011) was up from last year, but still was less than the national average for the month (8.7%). The city reports that tourism traffic has picked up for major events, and the number of hotel rooms in the metropolitan area now totals 93% of the more than 38,000 rooms that existed before the storm. Enplanements at the New Orleans airport also have been increasing, and now total 84% of the pre-Katrina level. The U.S. Corps of Engineers reported last month that work has been completed on $8 billion of storm protection projects that are expected to provide the city and surrounding areas with '100-year' hurricane protection.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and the National Association of Realtors.

Applicable Criteria and Related Research:

'Tax-Supported Rating Criteria' (Aug. 16, 2010);

'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 8, 2010).

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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