Fitch Rates Louisiana Stadium & Expo Dist. Rfdg Bonds 'A'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has assigned an 'A' rating to the following Louisiana Stadium and Exposition District (LSED or the district) bonds:

--$294 million senior revenue refunding bonds, tax-exempt series 2013A

--$47.4 million senior revenue refunding bonds, taxable series 2013B.

The bonds are scheduled for a negotiated sale the week of Jan. 14. Proceeds will be used to refund the outstanding revenue bonds of the district, terminate certain interest rate swap agreements, fund a debt service reserve, and pay costs of issuance.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a pledge of the gross revenues of the district, including the proceeds of a 4% hotel occupancy tax (HOT) collected in Orleans and Jefferson parishes; the pledge excludes any district revenues dedicated for other purposes or legally restricted.

KEY RATING DRIVERS

SATISFACTORY DEBT SERVICE COVERAGE: Debt service coverage is consistent with the rating level, just meeting the additional bonds test (ABT) of 1.50x coverage from historical pledged HOT revenue.

RECOVERING TOURISM INDUSTRY: Long a key component of the local economy, the tourism sector in New Orleans has exhibited steady growth in recent months, continuing a recovery from Hurricane Katrina in 2005.

STATE SUPPORT EVIDENT: The state historically has made significant capital and operational contributions to the district in support of the continued tenure of its resident sports teams.

WHAT COULD TRIGGER A RATING ACTION

SIGNIFICANT SHIFT IN REVENUE AND COVERAGE: A sizable decline in HOT collections, and a corresponding decrease in debt service coverage, could trigger a rating action. Increased HOT collections are less likely to result in a rating change given the possibility of additional leverage.

CREDIT PROFILE

INCREASING REVENUES, SATISFACTORY COVERAGE

The district anticipates repayment of the bonds will be made from the proceeds of the 4% HOT collected in Orleans and Jefferson parishes. The HOT is the most significant portion of gross revenue which is legally pledged to repayment. Annual collections generally have exhibited growth, with occasional recessionary dips. However, since 2001 (terrorist attacks) and continuing with Hurricane Katrina in 2005, collections have been significantly more uneven.

The fallout from Katrina was unprecedented, with a decline of more than 35% in 2006 collections. The recovery since then has been healthy, averaging nearly 9% annual increases through fiscal 2012 with only a 6.5% decline in fiscal 2009 due to recessionary influences. Fiscal 2012 collections of more than $37 million represented an all-time high. This revenue yielded maximum annual debt service (MADS) coverage of 1.45x.

Year-to date in fiscal 2013, revenue has increased roughly 16%; if this pattern continues total fiscal 2013 pledged HOT revenues will generate MADS coverage of more than 1.50x. A stress test that mirrors the post-Katrina plunge in HOT revenues shows revenues still able to cover annual debt service by slightly more than 1.0x.

TOURISM INDUSTRY RECOVERING

The HOT revenue trend reflects a strengthening tourism sector in New Orleans, as the regional economy continues to recover from Katrina, the 2010 Gulf oil spill, and the 2008 financial crisis and recession. Airport traffic, convention visitor counts and tourism spending totals have all been trending higher, with visitor spending posting a record high of more than $5 billion in 2011. (See 'New Orleans Economy on the Mend', a special report dated Dec. 17, 2012, available at www.fitchratings.com.)

In addition, the number of metro area hotel rooms has returned to pre-Katrina levels at roughly 37,000. The re-opening of the Hyatt Regency in fall 2011 added nearly 1,200 rooms to the total.

Overall economic recovery in New Orleans also continues, although recent statistics suggest a slowdown. Employment in the city has flattened out in recent months, although the city's unemployment rate has ticked down from 8.8% to 8.1% in the 12-month period ending October 2012. This rate is higher than both the state (6.3%) and U.S. averages (7.5%). Management notes a number of commercial projects either recently completed or underway, including construction on a $1.2 billion Louisiana State University-Veterans Administration medical center complex.

The city's estimated 2011 population of 360,000 is roughly 80% of the pre-storm total, and the U.S. Census Bureau named New Orleans the fastest growing U.S. city of 100,00 population or greater, based on nearly 5% growth from 2010 to 2011.

REFUNDING, SWAP TERMINATION PLANNED

Proceeds from this offering will refund the district's outstanding revenue bonds (series 2006A-D) and terminate interest rate swaps that were entered into with those bond series. The 2006 bonds were issued as auction-rate securities, and after a series of failed auctions for three of the series in 2008 the state stepped in and has purchased the bonds at auction since that time.

Fitch notes positively the move from auction-rate securities to fixed-rate bonds with this refunding, as well as the termination of the swaps. The swaps termination is costly, however, at an estimated $120 million (assuming a fixed-rate hedge agreement is also terminated). In addition to this public offering, the state is purchasing roughly $50 million of bonds that will have a subordinate lien on the pledged revenues.

Fitch considers the legal provisions satisfactory, with the senior lien bonds having an ABT of 1.50x and a cash-funded debt service reserve. The subordinate lien bonds have a 1.10x ABT. Both ABTs are historical, looking at pledged HOT collections (for senior lien bonds) and all available revenues (for subordinate lien bonds) for any consecutive 12 of the past 18 months.

COMPONENT UNIT OF THE STATE

LSED is a component unit of the state of Louisiana, and its seven-member board is appointed by the governor. It owns and operates the Mercedes Benz Superdome (home of the New Orleans Saints NFL club) and the New Orleans Arena (a multipurpose facility that is home to the New Orleans Hornets NBA club). General state oversight and support is an important consideration, as evidenced by the money appropriated by the state for both capital improvements and operational sustainability in the years since Hurricane Katrina.

The state has contributed more than $100 million in general fund resources to repairs and improvements to the Superdome since 2006, and plans to spend $50 million on improvements to the New Orleans Arena. In addition, the state has contributed more than $50 million to LSED operations since 2004 to defray large annual inducement payments to both the Saints and Hornets.

Fitch notes that the lease agreements between LSED, the state and both clubs have been revised since 2009. The revisions shift state support from operations to facility improvements, thereby creating incentives to both teams through additional revenue generating opportunities (e.g. luxury boxes and premium seating arrangements). The revised agreements also cap the state inducement levels at significantly lower amounts. Fitch expects these contractual changes to reduce financial pressures on the district going forward.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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. 14, 2012);

--'U.S. Local 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. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst
Steve Murray, +1-512-215-3729
Senior Director
Fitch, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Marcy Block, +1-212-908-0239
Senior Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Steve Murray, +1-512-215-3729
Senior Director
Fitch, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Marcy Block, +1-212-908-0239
Senior Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com