Fitch Rates Louisiana's $249MM Highway Improvement Revs 'AA-'; Outlook Stable
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.
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.
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'.
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.
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
U.S. State Government Tax-Supported Rating Criteria
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