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S&P Upgrades Louisiana's GO Debt to AA

DALLAS — Standard & Poor’s raised its rating Wednesday on Louisiana’s general obligation debt to AA from AA-minus due to the state’s willingness to resolve structural issues in its budget.

Analyst Sarah Smaardyk said the rating upgrade is based largely on the demonstrated willingness of the state to balance expenditures as revenues fall from historic, post-hurricane highs, and to deal with its public pension issues.

“The rating is further strengthened by the state’s almost unlimited ability to raise taxes and other revenues as well as its economy, which has experienced lower-than-average unemployment compared to the nation,” Smaardyk said in the report.

Gov. Bobby Jindal said the upgrade  is the first AA rating from Standard & Poor’s for Louisiana since 1984.

“This shows that the business world is taking note of our work to expand and diversify the state’s economy while pursuing reforms to make government more fiscally responsible,” he said.

State Treasurer John Kennedy said the upgrade was overdue.

“I’m very pleased, and frankly I feel we deserve it,” he said.

Freda Johnson, president of Government Finance Associates Inc., the state’s financial adviser, said the upgrade was welcome news as Louisiana prepares a $180 million GO refunding issue. The negotiated sale is set for the week of May 23.

“The upgrade reflects the new state rating criteria that Standard & Poor’s published in January,” Johnson said.

The state’s GO bonds are rated Aa2 by Moody’s Investors Service and AA by Fitch Ratings.

Louisiana has $2.4 billion of outstanding GO debt and $449.1 million of outstanding appropriation-backed debt.

Standard & Poor’s last raised Louisiana’s GO rating in October 2009, to AA-minus from A-plus, and Smaardyk said no rating action for Louisiana’s debt is expected for another two years.

“We do not expect to change the rating within our outlook’s two-year horizon, as we expect the state to continue to address its structural challenges, such as its underfunded pension systems, and we anticipate that it will likely continue to make expenditure cuts as needed to ensure balanced operations,” Smaardyk said.

Louisiana sold $300 million of GO bonds in March, the first new-money debt it issued since 2009.

In addition to the $180 million of GOs going to market later this month, debt sales in 2011 by the state are expected to include $71 million for statewide improvements at facilities of the Louisiana Community and Technical College System, $28 million of revenue bonds for construction of a juvenile corrections facility, and $30 million of revenue bonds for infrastructure associated with a major economic development project.

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