Louisiana Receives Moody's General Obligation Bonds Upgrade

Louisiana has received a second round of good news in two days, this time from Moody’s Investors Service which has upgraded the state’s “underlying general obligation bonds”

"I am delighted that Louisiana has received a second round of good news in as many days. Today we have learned that Moody’s Investors Service has upgraded Louisiana’s underlying general obligation bond rating from 'A2' to 'A1' with a stable outlook. This upgrade is comparable to the rating assigned to us yesterday by Standard & Poors and, like yesterday’s increase, provides Louisiana with the same rating as California. I am grateful to the state officials who participated in the conference calls with the rating agencies to assist us in stating our case and demonstrating the responsible fiscal approach we have been taking to strengthen Louisiana's financial situation." Said LouisianaCommissioner of Administration, Angele Davis.

Here are the comments from Moody’s and the presentation made by the State: http://doa.louisiana.gov/DOA/LA_Bond_Issue_2008_SP.pdf

Global Credit Research

New Issue

2 JUL 2008

New Issue: Louisiana (State of)

MOODY'S UPGRADES LOUISIANA TO A1 FROM A2 IN CONJUNCTION WITH SALE OF $200M GO

REFUNDING; OUTLOOK IS STABLE

UPGRADE APPLIES TO OVER $2B OUTSTANDING GO BONDS

State

Moody's Rating

Opinion

NEW YORK, Jul 2, 2008 -- Moody's has assigned an A1 long-term underlying rating to the State of Louisiana

General Obligation Variable Rate Demand Refunding Bonds, Series 2008-A, in the amount of $200 million.

The bonds are scheduled to sell on July 15, 2008. At the same time, Moody's has upgraded the state's

general obligation bond rating to A1 from A2 and the state's appropriation debt to A2 from A3, based on the

state's financial strength and recovery since Hurricane Katrina.

Credit Strengths:

* State showing robust growth in recent years, including large cash surplus for fiscal 2007 and expected cash

surplus for 2008.

* Federal funding is shouldering a significant portion of the state's recovery costs.

* Federal rebuilding aid expected to continue for at least two years, as federal funds allocated but not yet

spent total over $15 billion.

* As recovery and rebuilding operations continue, construction activity has multiplier effect throughout the

state economy.

Credit Challenges:

* The state's economic engine, New Orleans, was the area most affected by the hurricane.

* Debt ratios are rising.

* An economy that is relatively more volatile than other states, due to its concentration in two relatively

volatile sectors (tourism and energy).

BONDS REFUND GULF TAX CREDIT BONDS

Louisiana is issuing the $200 million Series 2008-A bonds to current refund its GO Tax Credit Bonds, Series

2006-A. The bonds will be issued in a weekly interest rate mode, and are expected to have a Letter of Credit

provided by BNP Paribas.

The president signed the Gulf Opportunity Zone Act (GO Zone Act) of 2005 on December 21, 2005. The Act

authorized Louisiana to issue up to $200 million in Gulf Tax Credit Bonds to help local governments pay their

bonded indebtedness. The Act required the bonds to be general obligations of the state and to mature in two

years. Further, the Act stated that the state would be responsible for paying the principal on the Gulf Tax

ISSUE RATING

General Obligation Variable Rate Demand Refunding Bonds, Series 2008A A1

Sale Amount $200,000,000

Expected Sale Date 07/15/08

Rating Description General Obligation Variable Rate Refunding Bonds Series 2008-A

Credit Bonds, and the U.S. government would essentially pay the interest by providing bond purchasers with

federal income tax credits. Proceeds of the Gulf Tax Credit Bonds had to be matched by an equal amount of

state funds.

Louisiana issued General Obligation Gulf Tax Credit Bonds Series 2006-A under the G.O. Zone Act, and

used the full $200 million authorization. They were not interest bearing, and they matured in two years. In

addition the State of Louisiana General Obligation Gulf Opportunity Match Bonds Series 2006B in the

amount of $200 million were issued to provide the state's matching funds. They were standard, 20-year

interest-bearing general obligation bonds.

The state adopted a resolution in June 2006 approving the issuance of the Series 2008-A Bonds, the

proceeds of which would be used to currently refund the General Obligation Gulf Tax Credit Bonds Series

2006-A Bonds in 2008, prior to the maturity date. In connection with the Series 2008-A Bonds, Louisiana

entered into two forward swap agreements, the purpose of which was to convert the state's floating rate

obligations with respect to the Series 2008-A Bonds to fixed rate obligations. These two swap agreements

are the only existing swaps entered into by the State of Louisiana.

VARIABLE RATE DEBT

All state debt is fixed rate debt except for these bonds. There are two swaps outstanding. There is a swap

outstanding on the Series 2008-A bonds which the state intends to keep outstanding. There is also a swap

outstanding on transportation bonds proposed to be issued in December 2008. If the state elects to issue the

transportation bonds on a fixed rate basis, this swap will be terminated. It is currently in the money for the

state by approximately $3 million to $4 million. If the state issues the transportation bonds as variable rate

debt, the swap may remain outstanding.

STATE'S FINANCES STRONG, STILL REFLECTING POST-HURRICANE REBOUND

Louisiana's economic and fiscal recovery after Katrina has been impressive. The state recorded a $1 billion

cash surplus for the end of fiscal year 2007, and expects another large surplus in fiscal 2008. Most recent

estimates show tax revenue growth in fiscal 2008 estimated to be $1 billion higher than budgeted. Available

reserves, on a GAAP basis, consisting of unreserved, undesignated General Fund balance and rainy day

funds, have grown during three consecutive years to a respectable almost 14% of operating revenues. These

positive results were produced by a combination of factors including (i) strengthened fiscal controls, (ii)

infusion of capital post-Hurricane Katrina, (iii) increase in personal income tax and corporate income tax

collections as a result of an increase in jobs, and (iv) increase in severance taxes collected due to the

heightened price of oil and natural gas.

Rebuilding efforts were slow to get started, but have begun to pick up recently. Of over $25 billion in federal

disaster recovery funds allocated, only $10 billion has been spent. The remaining $15 billion allocated, but

unspent federal disaster recovery funds ensure a steady source of capital to sustain the state's rebounding

economy. Of the $15 billion in unspent funds, more than $4 billion is intended to be used for housing and

almost $10 billion is to be used for other infrastructure.

The state has recently instituted business tax cuts, in order to spur business investment, as well as personal

income tax cuts. These may assist in long-term growth for the state. If the robust revenue collections do not

continue, however, they may contribute to fiscal slowing in the state.

ECONOMY STABLE, STATE PURSUING BUSINESS INVESTMENT STRATEGIES

Hurricane Katrina brought fears of depopulation, but in reality most of the people who left New Orleans (rated

Baa3) stayed within the state. While population figures for New Orleans before Katrina and today show a

sharp decline of over 16% (according to Moody's Economy.com), population in the state has fallen less than

6%. As the state's economy and finances have rebounded, the state has been actively pursing economic and

business development. Two hundred and six million dollars in business investment was announced in 2008,

including a Coca-Cola bottling plant ($93 million) and Edison Chouest shipyard ($60 million). The Edison

Chouest shipyard expansion is expected to result in 1,000 additional jobs.

STATE PASSES ETHICS REFORM BILL

In February 2008, the legislature passed an ethics reform bill as a result of an ethics reform special session.

The bill called for ending conflicts of interest (e.g. political figures can no longer work for a private company

that benefits from state contracts while also working for the state). It also requires better disclosure for

lobbyists, ending the practice of elected officials receiving unlimited meals from lobbyists, requiring online

reports of all state spending by agency and function, and establishing limits for campaign donations. In a

national ethics ranking published by the Center for Public Integrity, Louisiana went from bottom of the list two

years ago to first in the nation this year.

Outlook

The outlook on the bonds is stable, based on the state's steady recovery from Hurricane Katrina, as well as

the stable growth in the state economy and finances.

What could make the rating change--UP

* The state's major revenues, including income and sales taxes, continue to outperform estimates due to midterm

growth from rebuilding and investment.

* The state continues to maintain structural budget balance as rebuilding and reconstruction revive the state's

economy.

* Improvement in state's economy, including personal income and employment relative to the nation.

What could make the rating change--DOWN

* The state fails to maintain budget discipline and budget overspending and imbalances emerge.

* Revenue weakens materially and the state's cash position narrows.

* Economic development plans do not materialize.

* Tax cuts contribute to deterioration in state's available resources.

Analysts

Emily Raimes

Analyst

Public Finance Group

Moody's Investors Service

Maria Coritsidis

Backup Analyst

Public Finance Group

Moody's Investors Service

Contacts

Journalists: (212) 553-0376

Research Clients: (212) 553-1653

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