Fitch Rates Industrial Development Board of New Orleans Revs 'A' Underlying.

NEW YORK -- Fitch assigns an underlying rating of 'A' to $150 million Industrial Development Board of the City of New Orleans, Louisiana, Inc. State of Louisiana annual appropriation obligation revenue bonds (New Orleans Federal Alliance Project) series 2008. The first series of bonds for this project, $50 million series 2008A, is scheduled to sell in early October through negotiation. The bonds may be sold with credit enhancement. Fitch also affirms its 'A' ratings on outstanding Louisiana appropriation-backed bonds, as well as the 'A+' rating on outstanding state general obligation (GO) bonds. The Rating Outlook is Stable.

The 'A' rating is based on the credit quality of the State of Louisiana, as bonds are secured by annual legislative appropriations from the general fund pursuant to a cooperative endeavor agreement. Subject to appropriation, the obligation of the state to make payment is absolute and unconditional and not subject to diminution by abatement, setoff or counterclaim. The board has pledged the appropriations to the trustee. The state has other such agreements that support debt obligations. Oversight and control mechanisms are in place. The state division of administration analyzes the agreements and covenants to seek appropriation for debt service funds annually. Approval of the state bond commission, consisting of the state's major elected officials, is required, and an independent contract monitor appointed by the state monitors disbursements of bond proceeds.

Bond proceeds will fund the construction of facilities to allow for the relocation of U.S. Marine Corps activities to the Federal City Complex, located on the western bank of the Mississippi River in New Orleans, pursuant to Defense Base Closure and Realignment Commission (BRAC) recommendations. The stated objective is to create facilities that will attract both federal and private sector employers. The project is prominent and has received widespread support. The New Orleans Federal Alliance is a non-profit organization chartered to spearhead development efforts of the Federal City project.

The state of Louisiana's GO bond rating was upgraded in July 2008, reflecting the state's recent strong financial performance, growing reserve position, and continued economic expansion. With prudent management following the devastation caused by Hurricanes Katrina and Rita in 2005, the state has maintained sizable financial balances and realized exceptionally strong revenue collections, bolstered by high oil & gas and hurricane recovery-related revenues, although it remains to be seen how much of the recent revenue strength is sustainable over the long term. Economic recovery is evident, though progress has been slow in New Orleans, which was most affected by the storms. Credit strengths remain tempered by volatility inherent in the state's energy-reliant economy. State debt levels remain moderate, equaling 3.7% of 2007 personal income. Funding of the state's two largest pension systems is below average at 67.2% (state employees) and 71.3% (teachers) as of June 30, 2007.

Fitch issued an exposure draft on July 31 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').

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