Fitch Ratings said Thursday it upgradedLouisiana’s outstanding state highway improvement revenue bonds to AA from AA-minus and assigned a stable outlook to the bonds. Approximately $224 million of debt is affected.
In addition, Fitch assigned the AA rating to the state’s $202.415 million of Series 2021A taxable state highway improvement refunding revenue bonds scheduled for sale on Wednesday. UBS Financial Services will be lead underwriter on the deal. The deal is also rated AA by S&P Ratings.
Fitch said the upgrade reflects the rating agency’s “improved assessment of the sensitivity and resilience of the security structure to economic downturns. The rating also incorporates the ample coverage of debt service from pledged revenues, despite their volatility.”
However, the agency added prospects for revenue growth are modest and reflected the limited nature of pledged revenues as well Louisiana’s below-U.S. average economic growth. Fitch added with no additional leverage expected, the robust coverage cushion also offsets a somewhat volatile revenue stream.
“This is a great start to 2021 and a much needed bit of positive news. The better our bond rating, the cheaper it is for us to borrow money for public projects,” said State Treasurer John Schroder. “The rating upgrade saves the public money, which frees up additional funding for repairs to rural roads.”
The revenue bonds are not directly exposed to the general fund operations of the state. The flow of funds puts debt service ahead of any other uses and pledged revenue is collected in a separate fund.
As with most state dedicated tax bonds, Fitch still considers the rating linked to the state’s issuer default rating. Fitch said Louisiana’s AA-minus IDR with stable outlook is not currently a constraint on the rating given the agency’s assessment of the underlying credit quality of the pledged revenues and dedicated tax bond structure.