S&P raises Louisiana’s GOs to AA, citing ‘very strong’ reserves

S&P Global Ratings on Wednesday upgraded Louisiana’s general obligation bonds to AA from AA-minus.

S&P also raised the long-term rating on the state’s appropriation-backed debt to AA-minus from A-plus.

“The upgrades reflect our view of Louisiana’s demonstrated commitment to improving and maintaining reserves above levels that we consider very strong and the state’s ongoing effort to reduce unfunded pension liabilities through its strong pension funding discipline,” S&P analyst Rob Marker said in the ratings report.

S&P also upgraded the underlying rating on the state’s first- and second-lien gasoline and fuel tax bonds to AA from AA-minus and affirmed the AAA/A-1-plus dual rating.

The upgrade comes in connection with the state’s proposed $288.6 million of Series 2024A GOs and $95.6 million of Series 2024B GO refunding bonds.

The outlook on all ratings is stable, S&P said.

“We view both Louisiana’s strong reserve balance and its long-term commitment to funding its pension liabilities as generally sustainable provided enhancements within the state’s constitution dedicating funds to reserve accounts and unfunded liabilities,” Marker said.

S&P said improved discipline on pension funding should help reduce the potential for significant long-term fixed cost pressures.

“The stable outlook reflects Louisiana’s very strong reserve levels and demonstrated commitment to reducing expenditures when revenues fall below forecast,” S&P said. “These measures will provide stability in the short term and can help mitigate disruption from potential budget shortfalls, particularly as tax reductions continue to phase in.”

Proceeds from the Series 2024A bond issuance will finance various capital outlay projects while the Series 2024B proceeds will refund Series 2014C GO refunding bonds maturing on Aug. 1, 2025, 2026 and 2027.

On Tuesday, Moody’s Ratings affirmed Louisiana’s Aa2 issuer rating, as well as the Aa2 ratings on $3.5 billion of outstanding GOs and the Aa2, Aa3 and A1 ratings on $3.8 billion of outstanding state appropriation-backed and special tax debt.

Moody’s said its affirmations reflect Louisiana’s ongoing trend of healthy budget reserves.

On Friday, Kroll Bond Rating Agency affirmed its AA long-term rating and stable outlook on the state’s GOs.

Fitch Ratings assigns an AA-minus rating to the state’s outstanding GOs.