Fitch Affirms Louisiana Stadium & Expo Dist. Rev Bonds at 'A'; Outlook Positive

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

--$270.9 million senior revenue refunding bonds, tax-exempt series 2013A;

--$27.3 million senior revenue refunding bonds, taxable series 2013B.

The Rating Outlook is revised to Positive from 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

IMPROVING DEBT SERVICE COVERAGE: The Outlook revision to Positive from Stable is due to notably stronger debt service coverage, the result of increasing HOT revenues. Maximum annual debt service (MADS) coverage based on 2014 HOT collections was a solid 2x, up from roughly 1.5x two years ago.

RECOVERING TOURISM INDUSTRY: Long a key component of the local economy, the tourism sector in New Orleans continues its recovery from Hurricane Katrina in 2005.

ECONOMICALLY SENSITIVE PLEDGED REVENUES: The primary source of repayment for the district's outstanding bonds is a relatively narrow revenue stream that is subject to economic fluctuations.

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.

RATING SENSITIVITIES

REVENUE AND COVERAGE TRENDS: Continued growth in pledged revenues and resulting sound coverage will likely result in a rating upgrade. Conversely, a notable reversal of recent gains in HOT collections and/or material additional leveraging (and a corresponding decrease in debt service coverage), could trigger negative rating action.

CREDIT PROFILE

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 Smoothie King Center (a multipurpose facility that is home to the New Orleans Pelicans NBA club).

INCREASING REVENUES AND COVERAGE

The HOT is the most significant portion of gross revenue legally pledged to repayment of the bonds. Historical annual collections have exhibited consistent growth, with occasional recessionary dips. Recent exceptions to the growth pattern occurred in 2001 (terrorist attacks) and 2005 (Hurricane Katrina).

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 10% annual increases through fiscal 2014 with only a 6.5% decline in fiscal 2009 due to recessionary influences. Fiscal 2014 collections of $46.9 million represented an all-time high and were up 12.3% from the previous year. This revenue produces MADS coverage of 2x on the series 2013A and 2013B bonds and a 2013 $50 million subordinate lien private placement with the state of Louisiana.

Year-to-date fiscal 2015 HOT revenue has increased roughly 9%; if this pattern holds, coverage by year-end will exceed 2x. A stress test that mirrors the post-Katrina plunge in HOT revenues shows revenues still able to cover MADS by roughly 1.3x. The current healthy coverage also provides a cushion against a moderate amount of future leveraging, although management reports no additional borrowing is currently planned.

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 2008 financial crisis and recession, and the 2010 Gulf oil spill. Airport traffic, convention visitor counts and tourism spending totals all have been trending higher, with roughly 9.3 million visitors in 2013 spending a record $6.5 billion. In addition, the number of metro area hotel rooms has returned to pre-Katrina levels at roughly 37,000.

Overall economic recovery in New Orleans also continues, as evidenced by employment and population gains. Employment growth in the city has generally been positive in the past several years and registered a healthy 2.6% increase in the 12 months ending in September 2014. The annual unemployment rate also has been trending downward. At 7.5% in September 2014, the city's rate was down from a recent high of 8.8% in 2010, but remained above the state (6.1%) and U.S. (5.7%) averages.

A number of sizable commercial projects are either recently completed or underway in New Orleans. 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. The city's estimated 2013 population of nearly 380,000 is more than 80% of the pre-storm total.

SATISFACTORY LEGAL PROVISIONS

Fitch considers the legal provisions satisfactory, with the senior lien bonds having an additional bonds test (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

General state oversight and support of the district is an important credit 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 also financed $50 million in recent improvements to the Smoothie King Center. In addition, the state has contributed more than $70 million to LSED operations since 2004 to defray large annual inducement payments from the district to both the Saints and Hornets.

The lease agreements between the 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. parking, luxury boxes and premium seating arrangements). These agreement revisions should reduce financial pressures on the district going forward.

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. 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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=956795

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Contacts

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

Contacts

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