Shreveport, Louisiana, downgraded to Baa3 by Moody's

Shreveport, Louisiana's general obligation, issuer and senior lien revenue bonds were downgraded to Baa3 from Baa2 by Moody's Ratings, which cited narrowing financial flexibility and declining debt service coverage of its water and sewer revenue bonds. 

The junior lien revenue bonds were downgraded to the speculative rating of Ba1. 

The outlook on the ratings remains negative.

Moody's said it expects financial reserves and coverage levels to remain thin relative to sector peers. The city and system have growing operational expenses and extensive capital needs but unclear plans for rate increases, according to the rating agency. 

The water and sewer system plans to issue $179 million of bonds this year and, after this, the city expects to have about $981 million in debt outstanding. 

"Near-term improvement is imperiled by the city's limited revenue-raising ability, lack of clear plan for managing expenses without the use of reserves and significant capital needs for the city and its utility," Moody's said. 

The city's long-term liabilities, 387% of fiscal 2024 revenue, and fixed costs, 23% of fiscal 2024 revenue, will remain elevated, Moody's said. Leverage is expected to increase in coming years in part due to capital obligations connected to a consent decree. 

The water and sewer system's debt service coverage remains very narrow and below rate covenant at 1.04X based on net revenues in fiscal 2024, the agency said. Coverage isn't expected to materially improve. 

Moody's said the negative outlook reflects continued pressure on the city's financial position and its exposure to the water utility.

"While the city is disappointed in the downgrade, we are confident that we are taking actions to address the concerns Moody's expressed," said Shreveport Mayor Tom Arceneaux.

"They are particularly concerned about how the city's 2014 sewer system consent decree would continue to affect the financial health of our water and sewer system and the rates we must charge our customers," Arceneaux said. "We are working with our legal team and our allies in Washington to obtain a modification to the consent decree in 2026 and believe that it, together with continued fiscal discipline, will go a long way toward assuring the rating agencies, the investment community and our citizens that we are moving in the right direction."

S&P Global Ratings rates the city's GOs BBB-plus with a negative outlook and its water and sewer bonds A-minus with a stable outlook.

Moody's downgraded the city's GO and senior revenue bonds to Baa2 from Baa1 in October, 2024.

Shreveport is Louisiana's third largest city by population.