DALLAS — Fitch Ratings has raised its underlying rating on $222 million of debt issued by two New Orleans municipal agencies in recognition of the city’s slow but sustained economic recovery from Hurricane Katrina.
The rating upgrades include a move from BBB to A-minus for $94.7 million of senior-lien special tax bonds issued by the Ernest N. Morial-New Orleans Exhibition Hall Authority and an increase to BBB-plus from BBB-minus for $93.2 million of the authority’s senior-subordinate special tax bonds.
The upgrade also affects $34.2 million of general obligation aquarium bonds from the New Orleans Audubon Park Commission, whose underlying ratings were raised to BBB-minus from BB-plus.
All the upgraded credits are insured.
“The economy is getting better slowly, very slowly, but it is getting better,” said Austin-based Fitch analyst Steve Murray, who wrote the report along with Douglas Scott. “New Orleans seems to be heading in the right direction.”
The city’s general obligation debt is rated BBB-minus by Fitch, BB by Standard & Poors, and Baa3 by Moody’s Investors Service.
New Orleans’ overall economy is improving, the Fitch report noted, but daunting challenges still remain as it strives to recover from the damage inflicted by Katrina in late August 2005.
“While progress has been made, Fitch finds that gains in most critical areas such as housing, employment, public safety, health care, and education have been very slow to materialize, and the city faces years of recovery ahead,” Murray and Scott wrote. “However, with the recovery gradually gaining traction, Fitch expects that the large amount of recovery and rebuilding money expected to flow into the city and surrounding area will stabilize and ultimately boost the economy.”
Fitch said the park commission upgrade is based on a 38% increase in property tax valuations and tax collections that continue to exceed projections. The additional revenues provide an extra taxing margin for the commission’s GO debt service obligations and operational expenses.
The commission has been making debt service payments since 2006 with $16.8 million of proceeds from the state’s sale of $200 million of federal tax-credit bonds, which was matched with $200 million in state funds. The commission expects to use those proceeds for debt service through 2009, when anticipated attendance at the Audubon Zoo and the Aquarium of the Americas will be sufficient for expenses and debt service.
The Exhibition Hall Authority’s stronger credit profile is attributed to the recent defeasance of $293 million of outstanding bonds sold in 2004 to finance an expansion that never got under way in the wake of Katrina. The authority had $115 million of available reserves as of September.
Fitch also affirmed its existing ratings on $245 million of debt issued by the New Orleans Sewerage and Water Board, despite indications that utility revenues will be insufficient to meet operational expenses and debt service in 2008 and 2009.
The board’s debt includes $180.3 million of sewerage revenue bonds and $40.7 million of water revenue bonds rated by Fitch as B, and $23.9 million of drainage tax bonds with an underlying rating of BBB-minus. All the rated debt is insured.
The board is using its $77.5 million allocation from the 2006 tax credit bond proceeds to meet its debt service payments and has been meeting operational expenses with the assistance of a $58 million federal community development loan. However, the loan has been depleted and the remaining bond proceeds will cover debt service only through mid-2008.
Even with the board’s recent adoption of a five-year program of water rate increases, the report said, there will be little money available for the utility’s capital projects. A recent capital needs assessment by the board’s consulting engineer found $5.7 billion in total project costs, including about $2 billion of needs over the next three to five years.
