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Shreveport, Louisiana, was downgraded to Baa2 from Baa1 Wednesday by Moody’s Ratings. The agency maintains a negative outlook on the rating.
The downgrade of Shreveport’s issuer, general obligation and senior revenue ratings will affect $2.1 billion in debt when the city completes the anticipated $88 million Series 2014 general obligation bond sale.
The rating agency cited a significant decline in fund balances and reserves with additional declines expected through fiscal 2025.
Additionally, it reflects that a sewer system consent decree will lead to increased long-term liabilities.
The city’s cash and fund balance reserves fell to 32% and 1% of operating revenue, respectively in fiscal 2023.
“Further declines are expected in fiscal 2024 and fiscal 2025 as the city contends with declines in sales tax revenue and the cash funding of capital projects,” Moody’s said.
Long-term liabilities will reach about 444% of fiscal 2023 revenue when the anticipated Series 2024 bonds are sold, a level of liabilities that Moody’s described as high.
Fixed costs are also high, Moody’s said, at almost 27% of fiscal 2023 revenue and will increase as debt service related to the current and future issuances is layered in.
“Governance is a key driver of this rating action reflecting declining reserves within the city’s enterprise funds as a result of rate increases that have been insufficient to cover expenditures and meet debt service coverage requirements,” Moody’s said.
Moody’s is assigning the Baa2 rating to the city’s GO unlimited tax bonds and the city utility’s senior lien revenue bonds. The latter reflects the “utility system’s narrow debt service coverage and liquidity that is expected to remain pressured in the near term as the city continues negotiations with the EPA related to the sewer consent decree.”
Moody’s rates the junior lien utility debt Baa3.
Moody’s negative outlook reflects anticipated continued pressure on the city’s financial reserves with deficits expected through fiscal 2025.
S&P Global Ratings rates Shreveport’s GO debt BBB-plus with a stable outlook.
Shreveport’s mayor, city council chairman and city council vice chairman didn’t immediately respond to a request for comment.
In April