Fitch Ratings affirms the 'AA-' rating on the state of
Louisiana's (the state) highway improvement revenue (SHIR) bonds,
affecting $281.6 million in bonds currently outstanding.
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: 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. There are no plans to issue
additional debt under this security.
COMMODITY-BASED ECONOMY: The state's commodity-based, cyclical
economy, heavily linked to oil and gas production and petrochemical
manufacturing, has modestly diversified but almost one-third of the
state's gross domestic product continues to be derived from these
economic sources. The current low price for crude oil has delayed
economic investments in the state, and, Fitch expects declines in
related employment should prices remain subdued in the long
term.
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. No additional debt is expected to be issued under this
security, remaining below the $350 million in bonding authorized by
the state, as the state has structured the bonds such that
historical revenues will provide a margin just in excess of 2x
coverage on $23 million in total MADS.
Debt service is fully funded by first dollars received in the
Act 135 Fund. 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 that is managed through a
well-established process by an independent collection agency.
Historically, significant annual fluctuations in either or both
interstate (33% of fiscal 2014 pledged revenues) and intrastate
(67%) 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. A fiscal 2014 decline was expected when the bonding
program was initially rated and the actual rate of decline was less
than anticipated. Combined pledged revenue in fiscal 2014 of $50.75
million provided 2.2x coverage of expected, combined MADS, which
was approximately in line with Fitch's expectations for coverage
under full expected leveraging. A further decline in pledged
revenue was expected for fiscal 2015, but based on current fiscal
year trends through January 2015 Fitch expects some growth in the
pledged revenue stream. However, it will be tempered by potential
impacts from the slide in crude oil prices from which the state has
seen some economic and financial impacts.
Overall, a five-year average of combined pledged revenues
through fiscal 2014 of about $51.5 million provided 2.24x coverage
of combined MADS. The January 2015 state revenue estimating
conference (REC) certified a fiscal 2015 revenue estimate for the
SHIF, which receives the balance of pledged revenues after first
paying debt service on the outstanding bonds, based on collections
through December 2014. The REC currently forecasts revenue in the
SHIF to improve by 5.3% from fiscal 2014 and increase modestly
through fiscal 2019, while the state expects a revenue boost in
fiscal 2016 of 5.4% as trucks that registered in fiscal 2012 will
be required to renew their registrations under the four-year
registration requirement.
For additional information on the state, please see 'Fitch Rates
Louisiana's $228MM GO Bonds 'AA'; Outlook Stable' dated Feb. 11,
2015 and available at 'www.fitchratings.com'.
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. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980614
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Fitch RatingsPrimary AnalystMarcy BlockSenior
Director+1-212-908-0239Fitch Ratings33 Whitehall StreetNew York, NY
10004orSecondary AnalystEric KimDirector+1-212-908-0241orCommittee
ChairpersonLaura PorterManaging Director+1-212-908-0575orMedia
Relations:Elizabeth Fogerty, New York, +1 212-908-0526Email:
elizabeth.fogerty@fitchratings.com