Fitch Raises Louisiana to AA-Minus Before $325M GO Deal

BRADENTON, Fla. — Just ahead of Louisiana’s $324.8 million general obligation sale later this month, Fitch Ratings on Thursday upgraded the state’s GO rating to AA-minus from A-plus.

See the latest state ratings.

The higher rating applies to the upcoming GO deal, which is scheduled to price competitively on Oct. 27, and approximately $2.5 billion of outstanding GO debt. Fitch, which said the rating outlook is stable, also upgraded to A-plus from A the ratings on various state appropriation-backed credits.

The upgrade “reflects the strong financial management demonstrated by the state in recent years,” said a report by Fitch analyst Laura Porter.

“Most recently, the state acted to maintain budget balance and sizable reserves over the course of fiscal 2009 and in budgeting for fiscal 2010 as economic and revenue performance weakened,” the report said.

The rainy-day fund has a balance of $768 million, which represents about 9.5% of fiscal 2010 general fund tax, license, and fee revenues.

Porter also commended state officials for conservative revenue estimating in recent years and said Louisiana’s reserve position and focus on spending control support its ability to deal with future shortfalls.

State Treasurer John Kennedy said he met with rating agencies recently in hopes of earning upgrades of Louisiana’s ratings.

“We explained where we are and how we got here. We were very frank,” Kennedy said. “I think all of us pulled together the last two years. We had a downturn in revenues last year. We dealt with it. We’re going to have a downturn the next couple of years. We have a mechanism to deal with it.”

The Legislature has appointed a streamlining commission to make specific recommendations on how to deal with the impending shortfall over the next two years, and to quantify the savings, according to Kennedy. “That’s not ever been done before,” he said.

“This upgrade is rather remarkable given the current condition of the national economy, but it just shows that Louisiana is moving in the right direction in terms of prudent financial management, fiscal reform, and strong economic progress compared to other states,” commissioner of administration Angele Davis said in a statement.

Louisiana plans to competitively sell $200 million of new-money GOs and $124.8 million of refunding GOs on Oct. 27. The new money will finance high-priority projects on the capital outlay list developed by the Legislature.

The state’s GO bonds are rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s. Neither agency has released ratings for the upcoming sale.

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