Shreveport, Louisiana, is bringing its underlying triple-B credit to the market with the help of bond insurance.
The
The deal represents the last remaining authorization from a 2021 bond election.
There is more to come. The city's voters in April 2024 authorized
The first $88 million
The city plans to sell at least $168 million of GO bonds in the next two years, according to the POS.
An Assured Guaranty wrap gives the bonds an insured AA from S&P Global Ratings.
Shreveport's GO bonds have underlying ratings of Baa2 with a negative outlook from Moody's Ratings and BBB-plus with a negative outlook from S&P.
Moody's said in early April its Baa2 rating reflects the city's trend of declining financial reserves that is expected to continue in 2025 and the city's plans to issue more debt. The city's cash and fund balance reserves in fiscal 2023 fell to 32% and 1% of operating revenue, respectively, Moody's said. Further declines are believed to have happened in fiscal 2024 and are expected in fiscal 2025, which ends June 30.
A further decline in reserves could lead Moody's to downgrade the city, the rating agency said.
The city has a goal of maintaining 7% of general fund expenditures in the general fund reserve and has indicated it may approach that level in fiscal 2025.
"Maintaining an appropriate level (minimum of 7-8%) of operating reserves in the city's general fund continues to be a high priority of city management," Shreveport Mayor Tom Arceneaux said in an email. "We do not agree that the reserve amount is likely to drop below 7% because I, as mayor, will not propose budgets with a lower figure."
The city's long-term liabilities are "elevated, reaching approximately 443% of fiscal 2023 revenue," Moody's said. The city will have to contend with "significant future capital obligations associated with [a] sewer system consent decree."
Shreveport officials "appear to be following a pattern of resistance to taxes during good times that might have helped maintain reserves or even fund capital," said Joseph Krist, publisher of Muni Credit News.
Krist referred to the city's struggle with state and federal government agencies over repairing its wastewater system by saying, "When you consider that
"In most cases I've looked at requiring consent decrees, there always is a long process of resistance, usually politically based," Krist said.
"That drawn out resistance always seems to have the entity wind up somewhere they could have gotten to and gotten to faster. Just identifying the problem and then getting to the
"Utility debt is a concern, because it affects water and sewer rates," Arceneaux said. "Such debt is necessary to maintain aging infrastructure and meet requirements of a federal sewer consent decree. To that end, efforts are underway to obtain reasonable modifications of the consent decree. The city is cautiously optimistic that these efforts will succeed."
Shreveport is Louisiana's third-most-populous city, with 178,000 residents as of the end of 2024, down from 187,000 in 2019.
Its debt consists mainly of $236.5 million of GO bonds and $656.7 million in water and sewer revenue bonds as of June 30, 2024, according to unaudited figures in the Series 2025 POS.
The city's pensions are underfunded and the administration said it won't address this issue for "several years," S&P said.
Arceneaux acknowledged the city has "significant elevated long-term liabilities," particularly in GO and utility-backed debt. However, the city has the power to levy property rates necessary to pay the debt.
"Property tax rates for debt service have declined steadily for the past twenty years," Arceneaux said. "Although they will increase after 2026, to pay for new GO debt approved in 2021 and 2024, the rates will still be well below those levied in the 1990s."
As credit positives, Moody's noted the city benefits from several universities and the nearby Barksdale Air Force base.
S&P explained its BBB-plus rating in October by noting the city budget's "structural imbalance."
"Both the mayor and city council members acknowledge that this is an important issue that affects our ability to continue to issue debt at reasonable interest rates," Arceneaux said.
The city is experiencing positive economic developments, the mayor said. These include the establishment of Amazon's "most technologically advanced distribution facility" with 1,500 new jobs and plans to add 1,000 more jobs. LSU Health plans construction of a $60 million cardiovascular and cancer research center and Prolec GE expects to make a $40 million investment in existing Shreveport facility, Arceneaux said.
S&P said its negative outlook reflects "uncertainty regarding the city's willingness and ability to either raise revenues that are sufficient to cover expenditures or to make expenditure reductions that bring them in line with current revenues."
The city sold $88 million of Assured Guaranty-insured bonds in November for yields to worst between 3.1% for the March 2027 maturity and 4.52% for the March 2054 maturity.
The maturities in 2049 and 2054 and, to a lesser degree, other maturities, have been actively traded in recent weeks, with 19 trades recorded for May 1 alone on the EMMA web site.
Government Consultants is serving as the municipal advisor for the Series 2025 bond. Butler Snow and Blanchard, Walker, O'Quinn & Roberts are serving as the co-bond counsel.
The bonds will have serial maturities from 2026 to 2045 and be subject to optional redemption starting in March 2035, according to the POS. They are payable from unlimited ad valorem taxes on all taxable property.
The bonds are to be used to acquire police and fire department facilities, land, and equipment.
The Louisiana State Bond Commission has approved the bonds.
Stifel is the lead underwriter and Crews & Associates is co-managing.
