Louisiana highway revenue bonds affirmed at AA with stable outlook

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LA highway bonds AA affirmed

Highlights

Fitch Ratings affirmed Louisiana's State Highway Improvement Revenue Bonds at 'AA' with a stable outlook, citing strong debt service coverage and no new-money issuance plans.
Pledged revenues from truck and trailer registration fees deposited in the Act No. 135 Special Revenue Fund support resilient coverage, even after Fitch's standard 10% revenue stress scenario.
The pledged revenue stream's statutory separation from state operations enables a higher bond rating than Louisiana's Issuer Default Rating, with potential for up to two notches above if warranted.

Rating rationale and revenue backing

As reported by Fitch Ratings, the 'AA' rating on Louisiana's State Highway Improvement Revenue Bonds is supported by robust debt service coverage, a modest 'a' revenue risk assessment and the absence of plans for additional new-money bond issuance.

The bonds are special and limited obligations of the state, payable from pledged truck and trailer registration fees or taxes deposited into Louisiana's Act No. 135 Special Revenue Fund, also known as the 135 Fund. Fitch says those pledged revenues come from a narrow but essential economic activity, underpinning the 'a' revenue type assessment.

Fitch expects only modest revenue declines in future downturns, noting that historical volatility was partly tied to policy changes whose effects have faded since their fiscal 2012 implementation. The agency also says long-term growth prospects remain limited, citing the narrow scope of the pledged revenue stream and Louisiana's moderate economic growth trajectory, a profile it says is consistent with a 'bbb' assessment.

Coverage strength and credit separation

Pledged revenues can withstand a significant decline and still provide strong coverage of maximum annual debt service after Fitch applies its standard 10% revenue stress for the 'a' revenue risk assessment. The state's lack of plans for further new-money issuance also supports bondholder protection by limiting additional pressure on the revenue base.

Fitch says the pledged revenues are clearly segregated from normal state operations, allowing the bonds to carry a higher rating than Louisiana's Issuer Default Rating. The agency adds that the statutory dedication of the revenues to non-federal aid state roads, together with the limited nature of the pledge, could support a rating up to two notches above the state's IDR if the bonds' underlying credit quality warranted it.

Our earlier coverage of Hainan Rubber’s proposed subordinated perpetual sustainable securities explained why Fitch assigned a BBB- rating to the notes issued via Halcyon Agri and guaranteed on a subordinated basis. We outlined how subordination and coupon-deferral features influenced the rating, alongside Fitch’s view of the group’s leverage, liquidity, and the role of state-linked support in maintaining funding access.

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