TEXT - Fitch rates Louisiana's highway improvement revs 'AA-'

Tue Jan 15, 2013 9:50am EST

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Jan 15 - Fitch Ratings assigns an 'AA-' rating to the state of Louisiana's
(the state) issuance of $249.205 million state highway improvement revenue
(SHIR) bonds, series 2013A.

The bonds are expected to sell via negotiation the week of Jan. 21, 2013. 

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 were impacted 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 2 times (x) maximum annual debt service (MADS) test for 
additional bonds. The current offering, which is sized to result in coverage at 
the test level, is expected to be the sole issue under this resolution.

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.

CREDIT PROFILE

The state'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 by 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 six to nine months into the fiscal year based on historical trends.
A 2x MADS additional bonds test also provides support to this issue.

The current offering is the first under this security and the state has 
structured the transaction such that forecast revenues are expected to provide 
at least 2x coverage of approximately $20 million in level annual debt service. 
Excess annual revenue is required to be deposited first 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-federally 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 (31% 
of fiscal 2012 pledged revenues) and intrastate (69%) 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%.

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. Overall, a five-year average of combined 
pledged revenues through fiscal 2011 of an essentially flat $45.5 million 
provides 2.27x coverage of expected MADS. 

Coverage of MADS from fiscal 2012 pledged revenue ($60.5 million) is 3x. A 40% 
year-over-year increase in total pledged revenues in fiscal 2012 reflected the 
change to required four-year registrations for Class I trucks weighing less than
10,000 pounds from the prior annually required registration.

Original revenue expectations for fiscal 2013 were for a sizable decrease from 
the anomalous fiscal 2012 results. However, the state's revenue estimating 
conference (REC) recently certified a fiscal 2013 revenue estimate of $51 
million based on collections to date that provide 2.55x coverage of MADS. While 
the revenue decrease is still significant at 16%, the current estimate is an 
improvement to the prior forecast. The REC currently forecasts revenue to 
increase modestly through fiscal 2016, while the state is assuming a more 
conservative $40 million in annual revenue for the purpose of sizing the current
transaction.

Additional information on the state of Louisiana is available in the Oct. 16, 
2012 release, 'Fitch Rates Louisiana Local Govt Environmental Facil & Comm Devel
Auth $44MM Rev Rfdg Bds 'AA-'', available at 'www.fitchratings.com'.
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