NEW ORLEANS – Standard and Poor’s (S&P) Rating Services today upgraded its long-term and underlying rating to ‘A-‘ from ‘BBB+’ on the City of New Orleans’ general-obligation debt and issued a positive outlook for all ratings. This is the second S&P rating upgrade for the City of New Orleans since Mitch Landrieu became mayor in 2010 – the first upgrade occurred in 2013 to ‘BBB+’ from ‘BBB’– and the new rating exceeds the City’s general-obligation credit rating it had prior to Hurricane Katrina.
Additionally, both Moody’s and Fitch Ratings also recently revised their outlooks for the City of New Orleans to stable from negative. All three credit rating agencies have cited the City’s expanding economic base and sound fiscal management for the improved ratings and outlooks and suggested additional rating upgrades are possible if current trends continue.
“This is monumental news for the City of New Orleans and one of the strongest validations yet of the progress we have made in restructuring, rebuilding and reviving the City’s finances,” said Mayor Mitch Landrieu. “When we took office about five years ago, our administration faced a $97 million budget gap and we immediately got to work turning deficits into surpluses. We cut government spending, reformed contracting and procurement processes and followed strict budgets. Our work isn’t done, and we will continue to make substantive, fiscally responsible reforms to improve the City’s finances.”
The City requested the credit reviews as it prepares to sell $65 million in taxable public improvement bonds scheduled for competitive sale. The sale will be the last phase of the City general-obligation bonds authorized by the voters in 2004 as part of an overall $260 million bond program to improve roads and other infrastructure.
S&P issued its credit upgrade based on the City’s “improved budgetary flexibility and liquidity in fiscal 2013 coupled with ongoing commercial and residential development, which are expanding the city’s property and sales tax bases. The positive outlook reflects our view of the growth New Orleans' tax base and economy coupled with significantly improved budgetary flexibility."
Moody’s maintained its A3 rating on the City’s general-obligation debt and upgraded its outlook to stable from negative. The investment agency said the rating is “influenced by the strengthening local economy, which is large and continues to expand at a stable pace; a modest improvement in the financial performance and position of the City’s operating funds; and, high annual fixed costs when compared to the budget.” They also said the upgraded outlook “reflects the City’s ability to gain structural balance within its operating funds, produce two years of modest operating surpluses, regain positive year-end General Fund balances and commitment to building reserve levels.”
Finally, Fitch Ratings maintained its ‘A-‘ rating and also upgraded its outlook to stable from negative, which reflects “continued steady improvement in the City’s finances. Solid revenue gains and cost management efforts have yielded positive results towards structural fiscal balance.”
“Today’s news is not by accident; it is the result of years of meticulous planning, shared sacrifice and strong leadership,” said First Deputy Mayor and Chief Administrative Officer Andy Kopplin. “When Mayor Landrieu took office in May 2010, the City not only faced budget deficits, but it had spent every penny of its reserves along with $300 million in state and federal loans. This rating upgrade and these revised outlooks do more than simply validate our efforts – they allow the City to obtain lower interest rates and save residents money. I want to thank the Mayor for his leadership and all the dedicated public servants at City Hall who made this achievement a reality. We will also review these ratings carefully to continue to make reforms in our government that improve efficiency and garner even higher credit ratings in the future.”
In 2013, S&P also upgraded the bond ratings for both the Sewerage and Water Board’s Sewer Revenue and Water Revenue Bonds as a direct result of the Board’s sustained and stabilized financial position following the City Council’s approval of a 10 percent annual rate increase on water and sewer rates. S&P decided to raise the underlying rating (SPUR) on Sewer Revenue Bonds by two notches from ‘BBB’ to ‘A-’ with a stable outlook and raised the underlying rating (SPUR) on Water Revenue Bonds by one notch to ‘BB+’ from ‘BBB-’ with a positive outlook. These bond rating increases are helping the Sewerage and Water Board to save millions of dollars in interest and finance charges. The 10 percent annual rate increase was estimated at the time to generate $583 million and help fund a large portion of the Sewerage & Water Board’s $3.3 billion infrastructure improvement program composed of over 600 projects that would create 26,000 construction jobs.
In February 2015, all three credit rating agencies also issued positive credit ratings with stable outlooks for the Louis Armstrong New Orleans International Airport as it began securing approximately $486 million in bond proceeds to construct its North Terminal Project. The positive ratings reflected the three major credit rating agencies’ confidence in the Airport’s ability to successfully manage the new North Terminal Project due its continued growth in enplanements, low level of competition from nearby airports, good level of airline diversity and strong liquidity position. It is also expected that the Airport’s increased debt burden would be balanced by continuously improving financial metrics from growing passenger enplanements and that the Airport will be able to execute a new airline use and lease agreement to replace the agreement that expires this year.
Unforeseen challenges related to the firefighter pension plan remain a major area of concern for the credit rating agencies, which is why reforming the firefighter pension plan remains a top priority for the City.
“Across the board, the Landrieu Administration has meticulously and persistently worked to turn around this City's finances in every aspect, from its general budget to the Sewerage & Water Board to the Airport,” said Kopplin. “We recognize the challenges that remain, including concerns related to the firefighter pension plan. Once we reform the plan, the City will be in an even stronger financial position. That’s why we’re working around the clock to continue the historic progress we are marking in managing how the City does business. These positive credit ratings are just more evidence that we are building back stronger than before and that New Orleans is on a roll.”
The chart below represents a recent history of credit ratings assigned to the City of New Orleans. Listed under each year are the rating options for each agency; highlighted in yellow are the ratings assigned to the City for that particular year.
The credit rating announcements issued by the credit agencies ahead of the City’s competitive bond sale on March 18, 2015, are below: