AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating to the following obligations of the Ernest N. Morial-New Orleans Exhibition Hall Authority, Louisiana (the authority):
--$66.7 million special tax refunding bonds, series 2014.
The bonds are scheduled for a negotiated sale the week of November 3rd. Proceeds will refund the authority's outstanding series 2004 special tax refunding bonds for interest savings.
In addition, Fitch affirms at 'A+' the rating on the following outstanding authority debt:
$77.5 million series 2004 and $44.9 million series 2012 special tax refunding bonds (pre-refunding).
The Rating Outlook is Stable.
The bonds are payable from a first lien on the pledged revenues, consisting of hotel occupancy, food and beverage, and service contractor and tour taxes collected within Orleans Parish, a $2 million annual appropriation by the state legislature from the state's sales tax on hotel occupancy in New Orleans, and by a portion of the 1% hotel tax collections by the Regional Transit Authority (RTA).
The bonds are additionally secured by a standard cash debt service reserve.
KEY RATING DRIVERS
HEALTHY COVERAGE: Coverage of the bonds' MADS has improved over the last several years to a strong 3.6x using 2013 pledged revenues. The increase reflects steady gains in pledged revenues and no additional debt issuance for some time.
MAJOR DEVELOPMENT PROJECT PLANNED: The authority is embarking on a large multi-use development project on a site adjacent to the convention center. Details regarding project features and funding sources have not been finalized, and a future bond financing by the authority is one funding option.
PLEDGED REVENUES SUPPORT OPERATIONS: Residual pledged revenues after payment of debt service represent a significant funding source for the authority's operating and capital needs. This reliance creates a practical limitation on future leveraging, in addition to the 1.5x coverage test for additional parity debt.
POSITIVE LONG TERM ECONOMIC PROSPECTS: Economic prospects for New Orleans appear positive, as reflected in steadily increasing tourism and convention traffic and population gains. Recent news of infrastructure and commercial development projects is accompanied by steadily increasing employment totals, increased retail activity and climbing taxable values.
CONVENTION ATTENDANCE CLIMBING: Attendance at area conventions, including those held at the Morial Convention Center (MCCNO), has steadily improved since Hurricane Katrina in 2005. Authority management reports healthy booking levels for the convention center for the near and intermediate term.
AMPLE LIQUIDITY: The authority maintains substantial cash reserves, which while not pledged to the bonds, support pay-as-you-go capital spending and serve as a buffer against unforeseen revenue declines.
ADDITIONAL LEVERAGING, DEBT SERVICE COVERAGE: A large capital contribution by the authority for the new development project, either through available cash or a future borrowing (or both) could reduce liquidity and/or debt service coverage, both current credit strengths. Conversely, greater reliance on other funding sources for the project likely would mean maintenance of healthy liquidity and coverage going forward.
PLEDGED REVENUE CYCLICALITY: The inherent cyclicality of the pledged revenue stream is an ongoing credit concern, and any significant decline in revenues and resulting drop in coverage would be a key consideration in future rating reviews.
The Ernest N. Morial-New Orleans Exhibition Hall Authority is a political subdivision of the state of Louisiana. The authority is governed by a 12-member board of commissioners, nine of whom are appointed by the Louisiana governor and three by the mayor of New Orleans. The authority is legally distinct from the City of New Orleans (GO bonds rated 'A-'/Negative Outlook).
The authority was created by the legislature in 1978 for the purpose of building and operating a convention center in New Orleans. The convention center has undergone several phases of expansion since initial construction and is now the sixth largest in the U.S. The facility is located along the Mississippi River in downtown New Orleans.
STRONGER DEBT SERVICE COVERAGE REFLECTS GROWTH IN TOURISM ACTIVITY
Coverage of MADS by the 2013 pledged revenues is 3.6x, up from the 3.1x coverage in 2012 and 2.6x in 2011 (Dec. 31 fiscal year-end). The improved coverage resulted from continued solid growth in the basket of tourism-based tax revenues over the past several years. Revenues were up 15% in 2013, the third double-digit percentage gain in the past four years. The gains reflect the resurgence of the tourism sector and related visitor and convention traffic since Hurricane Katrina in 2005. Importantly, tax collections surpassed the pre-Katrina peak for the first time in 2012, climbing to $46.4 million or 112% of 2004 collections. The 2013 total improved to $53.3 million.
Management budgeted 2014 pledged revenues conservatively at $49.2 million, down from 2013 actuals. However, tax revenues through August 2014 are up more than 6% from the same 8-month period in 2013 and management is forecasting total receipts of $54.5 million at year-end. If realized, the projected revenues would cover MADS 4.0x (post refunding).
Existing pledged revenues stand up well to a stress scenario that replicates the loss of revenue experienced in the aftermath of Hurricane Katrina in 2005. A 40% decline from 2013 pledged revenue would still provide more than 2.0x MADS coverage (pledged revenues fell by 37.8% between 2004 and 2006).
ADJACENT DEVELOPMENT PLANNED
Plans are being developed for a multi-use project on a 47-acre authority-owned tract adjacent to the convention center. Preliminary plans include a new hotel, retail, a performance venue and additional exhibit space, at an estimated cost of nearly $1 billion. Project details, development partners and funding sources have not been finalized, and preliminary reports suggest the authority's participation would focus on utility and infrastructure (street) improvements. The authority's contribution, currently estimated at less than $200 million, could come from available liquidity, future bond proceeds, or a combination.
The ABT of 1.5x provides baseline protection for coverage dilution from future debt issuance, although the reliance on the pledged revenues for operations more substantially guards against over-issuance. Management does not have internal debt service coverage targets. The degree to which future debt plans affect coverage will be a key rating consideration for Fitch.
NEW ORLEANS ECONOMIC RECOVERY ONGOING
Economic recovery in New Orleans continues, as increasing tourism and a growing population highlight recent gains. Employment growth in the city has generally been positive the past several years and registered a healthy 2.5% increase in the 12 months ending in July 2014. The unemployment rate also has been trending downward. At 7.5% in July, the city's rate was down nearly a full percentage point from a year ago although it remained above the state (6.2%) and U.S. (6.5%) averages.
A number of high profile commercial projects are either recently completed or underway. Construction continues on the $1.9 billion University/VA medical center complex that is slated to open in the 2015-2016 timeframe and is projected to generate nearly 20,000 jobs. Also, three large retail stores and a new outlet mall recently opened in the city. Tourism continues to be a positive economic force, with the 2013 visitor total of nearly 9.3 million representing the highest count since 2003. The city's convention and visitors bureau also reported that tourism spending in 2013 was a record $6.5 billion.
The city's estimated 2013 population of nearly 380,000 is more than 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.
The number of shows both at the convention center and in the New Orleans area dipped slightly in 2013 but attendance levels continued to increase. The overall trend indicates a continued rebound from Katrina-related declines, and management expects solid booking levels for the convention center over the next several years (including the return of several large shows that had left previously and several noteworthy additions). The expectations for additional convention business appear reasonable to Fitch, given the ongoing resurgence of the tourism industry in the city.
LIQUIDITY A CREDIT STRENGTH
The authority's robust liquidity has increased significantly since 2005. Neither the cash reserves nor the non-tax revenues of the authority are pledged to bondholders. However, the availability of cash-on-hand has allowed the authority to paygo fund additional capital needs in lieu of debt issuance. The authority concluded fiscal 2013 with more than $200 million in unrestricted cash and liquid investments, or nearly 10x current liabilities.
The state has sought to draw down portions of the authority's fund balances in recent years to help address state budgetary challenges, although to date only $20 million was drawn in exchange for additional capital monies in 2012; the legislature rejected larger proposed draws in 2013 and 2014.
Authority operations, after subsidization by tax revenues, are generally positive. Fiscal 2013 results included $28.5 million in net income, the third positive year-end result in the past four years. Management is projecting another positive bottom-line result in 2014, aided by increasing tax and operational revenues and continued expenditure control efforts.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, 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
U.S. Local Government Tax-Supported Rating Criteria