S&P revises Louisiana GO bond outlook to positive on better reserves

S&P Global Ratings revised the outlook on Louisiana’s general obligation bonds to positive from stable and affirmed the state’s rating at AA-minus.

The rating action comes in connection with Louisiana’s next planned GO sale, the $251.1 million Series 2023-A competitive deal slated for April 13, according to Refinitiv..

“The outlook revision reflects our view of the state’s significantly improved reserve balance, including funding a new reserve account coupled with improved pension funding discipline,” S&P credit analyst Rob Marker said in a report. “The positive outlook reflects our expectation that there as at least a one-in-three chance that we will raise the rating over our two-year outlook period,” he added.

S&P noted very strong reserves coupled with a government framework that requires balanced budgets and permits timely expenditure adjustments if revenue projections miss forecast, and a moderate debt burden supports the AA-minus rating.

The state also received its first ever Kroll Bond Rating Agency rating.

Kroll assigned its long-term AA rating to the state’s Series 2023A GOs and assigned a stable outlook.

KBRA said its rating reflects the state’s “strong underlying credit profile, particularly the significant and continuing progress made in improving its financial position in recent years, as well as the formidable security provisions supporting the timely repayment of debt obligations.”

The bonds are general obligations of the state secured by its full faith and credit. Proceeds will finance capital improvement projects. In February, the state Bond Commission decided that to avoid any problems for the issuance, it would sell the GOs via a competitive sale rather than a negotiated transaction.

The decision came after a fight about whether several large banks vying for an underwriting position in the state’s pool had complied with a policy of “non-discrimination” against the firearms industry.

In addition, S&P affirmed the A-plus long-term rating on the state’s appropriation-backed debt and the AAA/A-1 dual rating and AA-minus underlying rating on the state’s first- and second-lien gasoline and tax bonds.

Louisiana’s rating is constrained by weak comparative economic fundamentals, moderately high-but-improving unfunded pension liabilities and exposure to volatile commodity markets, S&P said.

In May, Moody’s Investors Service raised Louisiana’s GOs and issuer credit rating to Aa2 from Aa3, citing the significant progress the state has made restoring its financial reserves and liquidity. The state’s outlook, previously positive, was revised to stable.

The state has structurally aligned its revenue and spending despite declines in production and a rise in volatility for its gas and oil industries along with unfavorable demographics, Moody’s said.

Fitch Ratings rates Louisiana AA-minus with a stable outlook.