Jan 4 - Fitch Ratings has assigned an 'A' rating to the following Louisiana
Stadium and Exposition District (LSED or the district) bonds:
--$294 million senior revenue refunding bonds, tax-exempt series 2013A
--$47.4 million senior revenue refunding bonds, taxable series 2013B.
The bonds are scheduled for a negotiated sale the week of Jan. 14. Proceeds will
be used to refund the outstanding revenue bonds of the district, terminate
certain interest rate swap agreements, fund a debt service reserve, and pay
costs of issuance.
The Rating Outlook is Stable.
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
SATISFACTORY DEBT SERVICE COVERAGE: Debt service coverage is consistent with the
rating level, just meeting the additional bonds test (ABT) of 1.50x coverage
from historical pledged HOT revenue.
RECOVERING TOURISM INDUSTRY: Long a key component of the local economy, the
tourism sector in New Orleans has exhibited steady growth in recent months,
continuing a recovery from Hurricane Katrina in 2005.
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.
WHAT COULD TRIGGER A RATING ACTION
SIGNIFICANT SHIFT IN REVENUE AND COVERAGE: A sizable decline in HOT collections,
and a corresponding decrease in debt service coverage, could trigger a rating
action. Increased HOT collections are less likely to result in a rating change
given the possibility of additional leverage.
INCREASING REVENUES, SATISFACTORY COVERAGE
The district anticipates repayment of the bonds will be made from the proceeds
of the 4% HOT collected in Orleans and Jefferson parishes. The HOT is the most
significant portion of gross revenue which is legally pledged to repayment.
Annual collections generally have exhibited growth, with occasional recessionary
dips. However, since 2001 (terrorist attacks) and continuing with Hurricane
Katrina in 2005, collections have been significantly more uneven.
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 9%
annual increases through fiscal 2012 with only a 6.5% decline in fiscal 2009 due
to recessionary influences. Fiscal 2012 collections of more than $37 million
represented an all-time high. This revenue yielded maximum annual debt service
(MADS) coverage of 1.45x.
Year-to date in fiscal 2013, revenue has increased roughly 16%; if this pattern
continues total fiscal 2013 pledged HOT revenues will generate MADS coverage of
more than 1.50x. A stress test that mirrors the post-Katrina plunge in HOT
revenues shows revenues still able to cover annual debt service by slightly more
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 2010 Gulf oil spill,
and the 2008 financial crisis and recession. Airport traffic, convention visitor
counts and tourism spending totals have all been trending higher, with visitor
spending posting a record high of more than $5 billion in 2011. (See 'New
Orleans Economy on the Mend', a special report dated Dec. 17, 2012, available at
In addition, the number of metro area hotel rooms has returned to pre-Katrina
levels at roughly 37,000. The re-opening of the Hyatt Regency in fall 2011 added
nearly 1,200 rooms to the total.
Overall economic recovery in New Orleans also continues, although recent
statistics suggest a slowdown. Employment in the city has flattened out in
recent months, although the city's unemployment rate has ticked down from 8.8%
to 8.1% in the 12-month period ending October 2012. This rate is higher than
both the state (6.3%) and U.S. averages (7.5%). Management notes a number of
commercial projects either recently completed or underway, including
construction on a $1.2 billion Louisiana State University-Veterans
Administration medical center complex.
The city's estimated 2011 population of 360,000 is roughly 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
REFUNDING, SWAP TERMINATION PLANNED
Proceeds from this offering will refund the district's outstanding revenue bonds
(series 2006A-D) and terminate interest rate swaps that were entered into with
those bond series. The 2006 bonds were issued as auction-rate securities, and
after a series of failed auctions for three of the series in 2008 the state
stepped in and has purchased the bonds at auction since that time.
Fitch notes positively the move from auction-rate securities to fixed-rate bonds
with this refunding, as well as the termination of the swaps. The swaps
termination is costly, however, at an estimated $120 million (assuming a
fixed-rate hedge agreement is also terminated). In addition to this public
offering, the state is purchasing roughly $50 million of bonds that will have a
subordinate lien on the pledged revenues.
Fitch considers the legal provisions satisfactory, with the senior lien bonds
having an 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
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 New Orleans Arena (a
multipurpose facility that is home to the New Orleans Hornets NBA club). General
state oversight and support is an important 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 plans to spend $50
million on improvements to the New Orleans Arena. In addition, the state has
contributed more than $50 million to LSED operations since 2004 to defray large
annual inducement payments to both the Saints and Hornets.
Fitch notes that the lease agreements between 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. luxury boxes and premium
seating arrangements). The revised agreements also cap the state inducement
levels at significantly lower amounts. Fitch expects these contractual changes
to reduce financial pressures on the district going forward.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
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
U.S. Local Government Tax-Supported Rating Criteria