Fitch Upgrades $222MM of Selected Orleans Parish, Louisiana Credits.

AUSTIN, Texas -- Fitch Ratings upgrades its ratings on the following credits located in Orleans Parish, Louisiana:

Ernest N. Morial-New Orleans Exhibition Hall Authority (the authority):

--$94.7 million senior lien special tax bonds, upgraded to 'A-' from 'BBB';

--$93.2 million senior subordinate special tax bonds, upgraded to 'BBB+' from 'BBB-'.

All outstanding debt of the authority is insured.

New Orleans Audubon Park Commission (the commission):

--$34.2 million general obligation (GO) aquarium bonds upgraded to 'BBB-' from 'BB+'.

All outstanding aquarium debt is insured.

Also, Fitch has affirmed the following ratings on the New Orleans Sewerage and Water Board (the board):

--$180.3 million sewerage service revenue bonds 'B';

--$40.7 million water revenue bonds 'B';

--$23.9 million drainage tax bonds 'BBB-'.

All outstanding debt of the board is insured.

As noted, these issues carry bond insurance, with the insurers expected to cover debt service non-payments, should they occur. Fitch's ratings and Outlooks apply to the underlying ratings only.

The Rating Outlook is Stable for all of the above credits.

The upgrades reflect developments that have strengthened the credit profile of the commission and the authority. Specifically, the sizeable increase in New Orleans taxable values for 2007 has generated additional taxing margin for both the commission's GO debt service obligations and operations. Property tax collection rates in the city continue to exceed budget projections, and the multi-billion dollar grant program underway for repair of residential properties should help stabilize the tax base over the near term. The upgrade for the authority results from a defeasance of nearly $300 million in outstanding revenue debt, which significantly reduces the authority's debt burden and improves debt service coverage margins substantially; the authority's healthy reserves also are a positive consideration.

On a broader note, Fitch believes that New Orleans (GO bonds rated 'BBB-' by Fitch) faces significant challenges as it continues its economic and financial recovery from Hurricane Katrina in 2005. While progress has been made, Fitch finds that gains in most critical areas such as housing, employment, public safety, health care, and education have been very slow to materialize, and the city faces years of recovery ahead. However, with the recovery gradually gaining traction, Fitch expects that the large amount of recovery and rebuilding money expected to flow into the city and surrounding area will stabilize and ultimately boost the economy.

The Audubon Park Commission operates the Aquarium of the Americas, which reopened in May 2006 after completion of storm-related repairs (the commission also operates the Audubon Zoo). Aquarium debt is repaid through a limited property tax levied against all taxable property in New Orleans. Taxable values in the city jumped nearly 38% for 2007, the result of assessments more closely tied to actual market values. This increase enabled the commission to lower its millage rate by nearly 30%, generating much needed taxing flexibility going forward. Tax collections also have improved; at roughly 85% last year, the rate of current collections is approaching historical averages.

Commission staff is utilizing roughly $17 million of federal tax credit bond money to make its debt service payments through mid-2009, and is applying property tax revenues to operations during this period. Visitor counts and admission revenues are expected to improve by 2009 so the tax revenue subsidy will no longer be necessary. Traffic at the aquarium and zoo is increasing, and commission staff projects 2008 zoo attendance to be 85% of 2004 (pre-storm) levels and aquarium attendance to be 75% of 2004 levels.

The Morial Exhibition Hall Authority debt is supported primarily from hotel and motel occupancy tax revenues in New Orleans. In 2003 the authority sold $294 million in subordinate lien revenue bonds to finance an expansion to the Morial Convention Center. A dispute involving the award of the construction contract delayed the expansion project until just prior to Hurricane Katrina in August 2005. Following the storm, the authority board decided not to proceed with the expansion due to changed market conditions. The authority defeased the $293 million series 2003A bonds outstanding, and as result debt serve coverage levels on the authority's remaining debt have improved markedly. Maximum annual debt service (MADS) coverage on all remaining debt, using projected 2007 tax revenues, is roughly 1.75 times (x); 2007 tax revenues would have been insufficient to meet MADS prior to the defeasance without federal tax credit bond money support.

With tourist and convention traffic depressed since 2005, authority tax revenues are down significantly. The authority budgeted 2007 revenues from its two largest sources - hotel and food and beverage taxes - at roughly two-thirds of 2004 totals. On a positive note, 2007 year-to-date revenue totals indicate that tax collections are roughly 8% ahead of budget projections. Fitch's concerns regarding tourist activity and tax revenues are mitigated somewhat by the authority's robust level of available reserves. These reserves, which totaled nearly $115 million at the end of September 2007, are available (along with surplus tax revenues) to support convention center operations until tourism and convention business recovers more fully. As a separate governmental entity, the authority's revenues are not part of the general city budget. More than $28 million in federal tax credit bond proceeds provide an additional financial cushion; these funds are being used by the authority to make debt service payments through January 2008.

In affirming the Sewerage and Water Board revenue bond ratings at below investment grade, Fitch believes that these securities retain more credit risk, largely resulting from weakened cash flow, reliance on non-recurring sources for financial relief, and substantial capital needs. Nonetheless, Fitch acknowledges the board's progress in returning to a regular billing cycle and improved collection rates. The Sewerage and Water Board, which provides retail water, sewer and drainage services to residents in New Orleans, resumed regular monthly billing in April 2006. The current customer base of roughly 120,000 is down approximately 20,000 from the pre-storm total. Utility bill collections have improved in recent months as the board has settled into a normal billing cycle; total 2006 receipts were roughly 90% of billed amounts.

Due to the much smaller customer base, cash flow at the board remains a significant concern. The board has relied on $58 million in federal community disaster loan (CDL) proceeds to help pay operating costs. The CDL money, plus the federal tax credit bond proceeds, has improved the board's liquidity position. However, the CDL money is essentially exhausted and the $78 million in federal tax credit bond proceeds will support debt service payments only until mid-2008. Board budget projections suggest that revenues from water and wastewater service charges alone will be insufficient to meet total operating and debt service costs in 2008 and 2009.

Even with recently adopted water rate increases for each of the next five years, projections indicate that little money will be available for water and wastewater capital projects (federal funding is scheduled the pay a significant portion of drainage system capital costs over the near term). A recent capital needs assessment performed by the board's consulting engineer identified $5.7 billion in total short-term and long-term project costs, including roughly $2 billion over the next 3-5 years. Fitch historically has cited poor liquidity as a credit weakness of the board. The limited cash flow, along with a lengthy reimbursement process with the Federal Emergency Management Agency for storm-related damages, has hindered board efforts to repair facilities and maintain service at expected levels.

The most recent estimates put the city's population at between 270,000-275,000, or approaching two-thirds of the pre-storm total. Daytime estimates are higher, as the housing shortage has forced many former residents to commute into the city for work from other parishes in the region. While employment levels in the metropolitan area have shown a gain of nearly 4% over the past year, they remain more than 15% below pre-storm levels.

The federal Road Home Program is the largest of the numerous federal and state financial assistance efforts and targets the most pressing need in post-Katrina New Orleans--housing. Until recently the program has been mired in administrative delays, and only in recent months has the number of closings begun to accelerate; the most recent program totals cite roughly 72,000 closings, or about 40% of the total number of applications. However, officials now fear that the program may not adequately fund needs, as the number of applicants has greatly exceeded original projections.

The city's economy continues to recover, but at an uneven pace. Tourism is estimated at roughly 60% of pre-storm levels, and the number of hotel rooms in the metropolitan area now exceeds 80% of the more than 38,000 rooms that existed before the storm. Fitch considers the recovery at Port of New Orleans a positive credit factor; total cargo tonnage has largely returned to pre-storm levels, driven primarily by bulk cargo such as iron and steel. However, container traffic remains well below earlier levels, due to damage at the port's container terminal facilities.

Substantially weakened infrastructure and service delivery systems remain impediments to future economic gains, as the city struggles to hire and retain police officers, and the criminal justice system continues to function with facilities and staffing below pre-Katrina levels. Also, the city estimates that only 50% of pre-storm hospital beds currently are available in the area. Long-term improvement is evident in the U.S. Department of Veterans Affairs' and Louisiana State University partnering to construct a $1.2 billion medical center in downtown New Orleans; the projected completion date is 2011. While 80 charter and non-charter schools opened for the 2007-08 school year in the city, 59 schools remain closed. The state took over the majority of public schools in the city from the long-troubled Orleans Parish School Board after Katrina.

Fitch will continue to monitor these entities and other New Orleans area credits. As developments occur and as the reconstruction process proceeds, Fitch will review the credit fundamentals of each and take any appropriate rating action.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.