Fitch Affirms Terrebonne Parish, LA's Bonds at 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the following Terrebonne Parish, Louisiana (the parish) ratings:

--$15.7 million GO bonds at 'AA-';

--$14 million public improvement sales tax bonds (PIBs) (excludes PIBs, series ST-2009 and ST-2011) at 'AA-';

--$6 million public library sales tax bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are supported by the full faith and credit of the parish and payable from an unlimited property tax levied against all taxable property within the parish's boundaries.

The PIBs feature a pledge of 1/3 of 1% of the parish general sales and use tax and 1/4 of 1% of a separate capital improvement sales and use tax. The PIBs also have a cash-funded debt service reserve equal to maximum annual debt service (MADS).

The public library sales tax bonds are payable from a 1/4% dedicated library sales tax. The library bonds also have a cash-funded debt service reserve equal to MADS.

KEY RATING DRIVERS

GOOD FINANCIAL FLEXIBILITY: Operating reserves and liquidity remain strong following the use of reserves for capital outlay. Management indicates that future fund balance draws for capital are likely, although reserve levels are expected to remain sound.

RELIANCE ON VOLATILE REVENUES: Management continues to budget conservatively for economically sensitive sales taxes and mineral royalties, which are the leading sources of operating revenue.

CONCENTRATED ECONOMIC BASE: The local economy is concentrated in the oil and gas industry, which has shown strong growth in recent years. The significant capital investment of major firms in off-shore drilling operations somewhat mitigate the risk in the near term posed by recent declines in market oil prices.

STRONG LIABILITY PROFILE: The parish's debt levels are low, with average amortization and manageable capital plans. Carrying costs are currently very low, though pension costs are rising due to the weak funding of the state's pension plans.

SPECIAL TAX RATINGS ON PAR WITH GO: Strong coverage and solid legal provisions support the 'AA-' special tax ratings that are on par with the parish's ULTGO rating. Additionally, the rating on the parish's special tax bonds is capped at the UTLGO rating.

RATING SENSITIVITIES

SOUND FINANCIAL PROFILE: The rating is sensitive to shifts in fundamental credit characteristics including the parish's strong financial management practices and resultant sound reserve levels. Significant reductions in the parish's financial cushion would lead to negative rating action. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Terrebonne Parish is located on the Gulf of Mexico in southern Louisiana, 50 miles southwest of New Orleans. The parish has an estimated population of 112,000 which is up slightly from the 2000 Census.

LOCAL ECONOMY CONCENTRATED IN OIL & GAS

Major employers are fairly limited, with healthcare and government institutions somewhat mitigating private sector concentration in the oil and natural gas industry. Oil and gas concentration is evidenced among the parish's top 10 taxpayers, predominantly petroleum and complementary firms, which constitute approximately 20% of the local tax base. Management expects the 2016 re-appraisal of existing values (occurring every four years in Louisiana) to reflect modest tax base growth in recent years.

Characteristically strong economic activity, driven by the oil and gas industry, has continued to support employment growth and favorable unemployment levels, though significant labor force growth has increased unemployment levels in recent months. Resident wealth levels remain modestly below average. Recent declines in the value of crude oil have not negatively affected the local employment market to date. Though the potential impact of persistently lower oil prices remains a concern, the significant long-term capital investment of major offshore drilling firms partly offsets this risk.

PRUDENT FINANCIAL MANAGEMENT

The parish's exposure to economically sensitive revenues, consisting of sales taxes and state mineral royalties, is mitigated by sound operating reserves and management's prudent budgeting practices. Conservative budgeting of volatile revenues generally yields significant favorable variances, and volatile revenues in excess of budget are typically allocated for non-recurring expenditures in the subsequent fiscal year.

Large transfers out for capital items have resulted in net operating deficits (after transfers) in recent years. Operations in 2013 ended with a very modest draw of approximately $380,000 from general fund balance despite a significant transfer of $3.8 million to the capital projects fund. The draw reduced 2013 unrestricted fund balance to a still-sound $11.7 million, or 36.4% of general fund spending. The 2014 budget is essentially flat and includes a modest draw of $126,000 from reserves. Management indicates that the parish has performed favorably year-to-date, driven by the outperformance of sales tax revenues, and will likely outperform the 2014 budget despite additional capital spending.

The maintenance of high reserves is critical to rating stability and a key mitigant to the parish's exposure to volatile revenue sources and a concentrated economic base. Fitch also recognizes the parish's expenditure flexibility, demonstrated by its past willingness to defer, reduce, or eliminate the pay-go contributions for capital improvements.

FAVORABLE LIABILITY PROFILE

Total debt ratios are low at $1,200 per capita and 1.6% of market value (MV). Amortization of sales tax and GO debt is moderate, with 49% of principal retired in 10 years, and debt service is affordable at 3.2% of 2013 governmental fund expenditures. Tax-supported debt plans are minimal, as the parish intends to continue funding capital plans with current resources.

The parish participates in three separate cost-sharing multiple employer (CSME) pension plans for parochial employees, police, and firefighters, and each plan's benefits and contributions are set by the state legislature. The parish's combined annual pension contribution equaled an affordable 2.8% of 2013 governmental fund expenditures despite nearly doubling since 2009. The two largest CSME plans have mixed funded ratios, estimated at 90% for parochial employees and a weaker 61% for police, based on the 7% investment rate of return used by Fitch. As a result, contributions for the police plan will likely continue to increase over the near to medium term, though spending pressure is unlikely because the amount is a small share of the budget.

Other post-employment benefits (OPEB) for retiree healthcare are funded on a pay-as-you-go basis. The unfunded liability was $67 million for governmental activities as of Jan. 1, 2012, equal to 0.8% of 2013 MV. Fitch views positively the parish's recent actions to reduce the UAAL which include limiting eligibility and reducing the parish's premium contributions.

Total carrying costs, including debt service, pension ARC and OPEB contributions, equaled a very low 7.2% of 2013 governmental fund spending.

SPECIAL TAX BONDS COVERAGE REMAINS STRONG

2013 MADs coverage on the PIBs is strong at 3.5x, up modestly from 3.2x in 2012. 2014 coverage is projected to remain essentially flat, based on the first 11 months of collections data. The parish has not indicated plans to sell additional PIBs debt, maintaining coverage comfortably above the strong 2.0x additional bonds test. Coverage of library sales tax bonds MADS is projected to remain very strong at 6.2x in 2014, given no future special tax debt plans and a strong additional bonds test (ABT) of 2.0x.

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.

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=976756

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Contacts

Fitch Ratings
Primary Analyst:
George M. Stimola, +1-212-908-0770
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Steve Murray, +1-512-215-3729
Senior Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Realtions, New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
George M. Stimola, +1-212-908-0770
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Steve Murray, +1-512-215-3729
Senior Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Elizabeth Fogerty, +1-212-908-0526
Media Realtions, New York
elizabeth.fogerty@fitchratings.com