Fitch Ratings and Standard & Poor’s raised their ratings on Louisiana’s general obligation bonds by one notch as the state prepares a competitive sale of $324.8 million of GOs for Oct. 27.

Both agencies increased the GO debt rating to AA-minus from the A-plus ratings that had been assigned in July 2008.

The Fitch upgrade covers $2.5 billion of outstanding debt. Fitch also raised its rating on several issues of state appropriations-backed debt to A-plus from A. The outlook is stable.

Fitch analyst Laura Porter said the move “reflects the strong financial management demonstrated by the state in recent years.” 

Moody’s Investors Service retained its A1 rating of Louisiana’s GOs, but raised the outlook to positive from stable.

Moody’s said Louisiana’s upgrade in July 2008 to A1 from A2 was the sole state ratings boost provided by the agency since the beginning of the current recession.  Only Louisiana and West Virginia have had their outlook changed to positive from stable over the same period, Moody’s said.

Since the economic downturn began, Moody’s said it has downgraded the ratings of five states, assigned 11 negative rating outlooks, and put five states on negative watch.

Freda Johnson of Government Finance Associates Inc., Louisiana’s financial adviser, said it was gratifying to see recognition of the state’s strenuous efforts to put its finances in order.

“We had all three agencies come to Baton Rouge for very intensive and comprehensive meetings with the state treasurer, the governor, the commissioner of administration, legislative leaders, and about 30 other people,” Johnson said. “We had very good feedback from the agencies on the completeness of the presentations, and the quality of the people in the meetings.”

Johnson said the rating upgrades could result in significant savings for the state in the upcoming sale.

“We really think it will have a salutary affect on the interest rate the state will pay,” she said. “In today’s market, we think the benefit could be five basis points or more.”

The competitive sale will include $200 million of new money and $124.8 million to refund outstanding debt from 1998.

The new money will finance high-priority projects on the capital outlay list developed by the Legislature.

State Treasurer John Kennedy participated in the recent meetings with rating agencies.

“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.

Commissioner of Administration Angèle Davis said the upgrades and positive actions by the rating agencies are strong endorsements of the state’s economic progress.

“Through its actions, Louisiana has sent a strong message about our improving business climate and economic success, and the upgrades this week show that the financial community is listening,” she said. “These affirmations are also an example of how the state’s fiscal responsibility has tangible benefits to the tune of several million dollars in taxpayer savings.”

Gov. Bobby Jindal said that while the upgrades are gratifying, more work lies ahead.

“The upgrade sends a message that Louisiana’s business climate continues to improve and we’ve established an economic environment that is creating opportunity for our people,” he said.  “While we’ve made incredible progress through dozens of economic development wins, our work is not done yet.”

The report from Moody’s said the financial impacts of hurricanes Katrina and Rita that hit the state in 2005 have been moderated by the federal aid and insurance rebuilding money made available following the flooding caused by the two storms.

Insurance payments have fueled the state’s economy, Moody’s said, but that source of funds will dwindle as the reconstruction proceeds. Louisiana has received $15 billion in federal community development block grants as a result of the storm damages, with some $5 billion remaining unspent.

The state’s population fell by more than 250,000 following the storms, as many residents of New Orleans and the heavily populated delta region in southern Louisiana moved out of state.

Some 167,000 residents have returned, but the population is not expected to reach pre-hurricane levels until after 2013. New Orleans’ population is estimated at 80% of pre-storm totals.

The state’s outstanding debt includes only $200 million of variable-rate GO debt, issued in 2008, and $30 million of appropriation debt issued by the Louisiana Agricultural Finance Authority in 2004.

Shelly Sigo contributed to this story.

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