Fitch Rates Louisiana's $202MM Highway Improvement Rev Bonds 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the state of Louisiana's (the state) $201.68 million highway improvement revenue (SHIR) bonds, series 2014A.

The bonds are expected to be sold through negotiation on Feb. 19, 2014.

In addition, Fitch affirms the 'AA-' rating on the state's outstanding parity series 2013A bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are special and limited obligations of the state payable from and secured by pledged truck and trailer registration taxes and fees.

KEY RATING DRIVERS

ESTABLISHED BUT VOLATILE REVENUE STREAM: The state's collection of truck and trailer registration taxes and fees is well-established, with distribution to the state highway infrastructure fund in place since 2007. Pledged revenues are susceptible to both state and national economic conditions and historically have been affected by significant weather-related events as well as the Horizon oil spill.

STRONG FLOW OF FUNDS: A strength in the flow of funds is the priority of pledged revenue for debt service on these bonds prior to transfer to the state's bond security and redemption fund. Also providing credit support is the requirement that a full year's debt service be funded from first dollars received prior to any other uses.

SOUND COVERAGE: The bonds benefit from sound coverage of debt service by pledged revenues, with a 2x maximum annual debt service (MADS) test (ABT) for additional bonds. The state reports that the current issue will complete its plans to issue debt under this security.

COMMODITY-BASED ECONOMY: The state's commodity-based economy, heavily linked to oil and gas production, has modestly diversified although one-third of the state's gross state product continues to derive from the production and delivery of raw materials and intermediate goods.

RATING SENSITIVITIES

The rating is sensitive to shifts in the level of pledged revenues that would affect debt service coverage on the bonds.

CREDIT PROFILE

Louisiana's SHIR bonds are secured by pledged revenues initially deposited to the state's Act No. 135 special revenue fund (Act 135 Fund). Pledged revenues consist of commercial truck and trailer registration license fees or taxes collected within the state, other than within the parishes of Orleans, Jefferson, St. Charles, St. John the Baptist, Tangipahoa, and St. Tammany. The pledge also includes fees or taxes levied upon commercial trucks and trailers engaged in interstate commerce that use state roads. The pledge does not include registration license fees or taxes for school and charity buses, motorcycles, commercial passenger vehicles, road tractors, and taxi cabs.

The 'AA-' rating on the bonds reflects the gross pledge of the designated revenue sources prior to excess revenues being made available to the state's bond security and redemption fund (BSRF). Pledged revenues have shown a fair amount of variability over time, with impacts from both economic and catastrophic weather conditions. Debt service is fully funded by first dollars received in the Act 135 Fund, providing for expected full funding of debt service requirements on the combined series 2013A and 2014A bonds about eight to nine months into the fiscal year based on historical trends. Total debt issuance under this security, including the current issue, will total $285.7 million; up from the $250 million of total par expected a year ago but below the total $350 million authorized by the state.

The current offering is the final expected under this security and the state has structured this issue such that historical revenues will provide at least 2x coverage of approximately $23.3 million in expected total MADS. Excess annual revenue after debt service set asides is required to be next deposited to the state's BSRF, which receives all non-dedicated revenues for the benefit of the state's general obligation bondholders. The balance is then transferred to the state highway improvement fund (SHIF) for operating expenses and other capital projects related to the state's system of non-federal-aid-eligible roads.

Pledged revenues are captured in two separate accounts in the Act 135 Fund: an intrastate SHIF account and an interstate SHIF account. Deposits are made on a daily basis to the intrastate SHIF account from the collection of registration taxes and fees on trucks and trailers that operate solely within the state. The interstate SHIF account receives pledged revenue on a monthly basis from trucks and trailers engaged in interstate trucking (operating in multiple states) through a collection agreement with the International Registration Plan (IRP) that is managed through a well-established process by an independent collection agency.

Historically, significant annual fluctuations in either or both interstate (34% of fiscal 2013 pledged revenues) and intrastate (66%) pledged revenues have resulted from a number of factors. Among them are: the state's recovery from multiple hurricanes; the economic recession; the Horizon oil spill; as well as a rate change in fiscal 2012 for Class I truck registrations that boosted intrastate revenue collections by 66% and total collections by 40%.

The largest year-over-year decrease in total revenues since 2000 was a 14.7% decline in fiscal 2011, when a 34% decline in intrastate revenue was offset by a 46% increase in interstate revenue. Revenues declined by 13.7% in fiscal 2013 due to a change in requiring four-year registrations for Class I trucks weighing less than 10,000 pounds from the prior annually required registration that boosted receipts in fiscal 2012. A fiscal 2013 decline was expected when the bonding program was initially rated last year and the actual rate of decline was less than anticipated. Combined pledged revenue in fiscal 2013 of $52.26 million provides 2.24x coverage of expected, combined MADS after this sale; approximate to Fitch's earlier expectations for coverage under full expected leveraging.

Overall, a five-year average of combined pledged revenues through fiscal 2013 of an essentially flat $51.2 million provides 2.2x coverage of expected combined MADS. Expected coverage of MADS from a conservative forecast of fiscal 2014 pledged revenue ($40 million) is 1.72x (lower than the 2x coverage expectation derived from the state's earlier baseline forecast due to larger debt service requirements). The January 2014 state revenue estimating conference (REC) certified a fiscal 2014 revenue estimate of $42.1 million based on collections through December 2013. The REC currently forecasts revenue to remain flat for the remainder of fiscal 2014 and increase modestly through fiscal 2018, while the state expects another large revenue boost in fiscal 2016 as trucks that registered in fiscal 2012 will be required to renew their registrations under the four-year registration requirement.

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. Local Government Tax-Supported Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820168

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Contacts

Fitch Ratings, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Senior Director
Marcy Block, +1-212-908-0239
or
Fitch Ratings,
1 State St. Plaza,
New York, NY 10004
or
Secondary Analyst
Director
Eric Kim, +1-212-908-0241
or
Committee Chairperson
Managing Director
Laura Porter, +1-212-908-0575

Sharing

Contacts

Fitch Ratings, New York
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com
or
Primary Analyst
Senior Director
Marcy Block, +1-212-908-0239
or
Fitch Ratings,
1 State St. Plaza,
New York, NY 10004
or
Secondary Analyst
Director
Eric Kim, +1-212-908-0241
or
Committee Chairperson
Managing Director
Laura Porter, +1-212-908-0575