BRADENTON, Fla. — Standard & Poor's elevated Baton Rouge, La.'s sales- and use-tax revenue bonds to triple-A noting the city's role as an economic center, improving debt service coverage, and lack of additional parity debt plans.

The upgrade to AAA from AA-plus affects about $90.5 million of 2005B, 2007A, 2008A-2, 2008B, 2010A, and 2010B bonds. A first-lien pledge of revenue from a 2% citywide sales- and-use tax secures the bonds.
The outlook is stable, S&P said in a Nov. 20 report.

The upgrade also reflects maximum annual debt service coverage in 2012 of 10.06 times, and strong bond provisions, including an additional bonds test of three times, and lack of additional parity debt plans due to the general fund's reliance on excess revenue to finance daily operations, according to S&P analyst Omar Tabani.

While pledged revenue from Baton Rouge's 2% sales tax decreased 14% from fiscal years 2007 to 2010 due to the national economic downturn, sales tax revenue has since increased by 7% to $90.8 million in fiscal 2012 providing "a strong" 10.06 times maximum annual debt service coverage, Tabani said.

City officials project collections will be $91.1 million in fiscal 2013, and have budgeted a 1.5% increase in revenues for fiscal 2014. A fully funded debt service reserve fund provides liquidity.

The city is prohibited from issuing additional parity debt unless pledged revenue from the previous two years provides at least 3 times maximum annual debt service coverage on existing and proposed bonds. Any excess revenue not used for debt service is deposited into the general fund, which accounted for about 60% of fiscal 2012 general fund revenue.

"Due to the city's reliance on excess sales tax revenue to fund daily operations, we understand officials do not plan to issue additional parity debt over the next few years," S&P said.

Baton Rouge, with a population of 230,000, is the state's capital and second-largest city.

"The stable outlook reflects Standard & Poor's opinion of Baton Rouge's role as a regional economic center that will likely allow for continued pledged revenue growth," Tabani said. The outlook also reflects Standard & Poor's expectation that debt service coverage will likely remain, what we consider, strong due to Baton Rouge's reliance on excess revenue for operations and the subsequent disincentive to issue significant amounts of additional parity debt.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.