During the course of routine surveillance, Fitch Ratings upgrades the following ratings of the Ernest N. Morial-New Orleans Exhibition Hall Authority (the authority):
--$88.8 million senior lien special tax bonds to 'A' from 'A-';
--$92.7 million senior subordinate special tax bonds, to 'A-' from 'BBB+'.
The Rating Outlook is Stable for the above securities.
The upgrades reflect continued growth of the various tourism-related revenues that support the outstanding bonds and corresponding improved debt service coverage levels. This improved financial profile is a result of increased convention and general tourism business in New Orleans over the past 18 months, although the recession has depressed visitor traffic to a degree recently. The authority's debt profile changed significantly in fall 2007 with a defeasance of nearly $300 million in outstanding revenue debt as a result of the cancellation of a planned facility expansion, and this development was a key factor in Fitch's recent rating actions. The authority's healthy and expanding reserves also are a positive credit consideration.
Authority debt is supported primarily from hotel and motel occupancy tax revenues, as well as food and beverage taxes, sightseeing and contractor services fees, and an annual state appropriation. The 2007 defeasance of $293 million series 2003A bonds resulted in significantly improved debt serve coverage levels. Maximum annual debt service (MADS) coverage on all remaining debt, using 2008 tax revenues, is roughly 2.1 times (x); stress scenarios that reduce revenues by as much as 25% and 40% still generate satisfactory coverage. The authority utilized more than $28 million in federal tax credit bond proceeds to make debt service payments through January 2008; these funds are scheduled to be repaid beginning in 2012. The authority notes that it has no near-term borrowing plans, and will finance ongoing capital needs with available resources.
With tourist and convention traffic increasing in the years following Hurricane Katrina, authority tax revenues have been gradually approaching pre-storm levels. Total revenues increased 18% in 2007 and nearly 12% in 2008. In light of the recession, 2009 revenues were budgeted at roughly the same level as 2008 actual totals, at slightly more than $34 million. The authority budgeted 2009 revenues from its two largest sources--hotel and food and beverage taxes--at about 80% of 2004 (pre-Katrina) totals. The authority reports that, despite recessionary pressures, 2009 year-to-date tax collections are coming in at nearly 99% of budget projections. Fitch also notes as a credit strength the authority's robust level of available reserves. These reserves, which have been increasing steadily since 2005, totaled $120 million at Dec. 31, 2008. The authority plans to utilize some reserves over the near term to make various improvements to the facility, including technology upgrades and aesthetic enhancements.
On a broader note, the city's recovery from Hurricane Katrina continues. The U.S. Census Bureau recently revised upwards by 20% its July 2007 city population estimate to about 288,000. The most recent estimates put the city's population at between 300,000 to 325,000, or nearly 70% of the pre-storm total. While employment levels in the metropolitan area have shown a gain of nearly 7% since 2006, they remain about 15% below pre-storm totals. The latest city unemployment rate of 7.1% (February 2009) was up sharply from last year, but still was less than the national average for the month (8.1%). The city reports that tourism traffic has picked up for major events, as evidenced by the estimated one million visitors for the 2009 Mardis Gras celebration (up 25% from 2008). The number of hotel rooms in the metropolitan area now exceeds 85% of the more than 38,000 rooms that existed before the storm. The city's taxable value has rebounded, climbing more than 10% in 2007 and jumping nearly 38% in 2008 thanks to citywide reappraisals. Property tax collections also have improved; for 2008 current collections totaled more than 85% of the levy amount, which is approaching historical averages.
Improvements to infrastructure and service delivery systems have occurred, although much work remains to be done. The city reports that the number of police officers is approaching pre-Katrina totals, and a renovated municipal courts facility recently opened. Also, it is estimated that only 50% of pre-storm hospital beds currently are available in the area. Long-term healthcare improvement is evident in the U.S. Department of Veterans Affairs' and Louisiana State University partnering to construct a $2 billion medical center in downtown New Orleans; construction is expected to begin later this year when acquisition of all property is completed, and completion is expected in 2-3 years. While more than 80 charter and non-charter schools are currently open in the city, nearly 50 schools remain closed. The state took over the majority of public schools in the city from the long-troubled Orleans Parish School Board after Katrina.
New Orleans' near term capital needs are sizeable at roughly $1.2 billion, and city officials are hopeful that federal assistance and insurance proceeds will finance the majority of these needs. Officials report that more than $360 million in street repair/rebuilding has begun, and that eight major roadway projects have been completed. They also cite various planned infrastructure projects by other agencies (U.S. Corp of Engineers, Veterans Administration/Louisiana State University, New Orleans Sewerage and Water Board, U.S. Department of Housing and Urban Development, the state Recovery School District, the Road Home Program, and the U.S. military) as having a projected multi-billion dollar impact on the local economy. The Road Home Program targets the most pressing need in post-Katrina New Orleans: housing. Over the past twelve months the number of closings has accelerated; the most recent program totals cite roughly 124,000 closings or nearly 90% of the total number of applications. The program to date has disbursed $7.9 billion for residential rebuilding efforts in coastal areas of Louisiana.
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