Officials Address Bond Worries

Finance officials in Louisiana and Mississippi on Thursday tried to soothe concerns of investors who hold bonds issued by those storm-ravaged states and their municipalities.

Nonetheless, credit rating firm Moody’s Investors Service put a total of $9.5 billion in Louisiana and Mississippi debt on its watch list for possible downgrade because of damage and disruption caused by Hurricane Katrina.

Fifty-one issues were put under review, including a combined $5.9 billion of Mississippi and Louisiana state debt, as well as tax-free bonds sold by entities such as the New Orleans sewer and water board and the Biloxi Public School District.

Louisiana finance officials, lawmakers and the state attorney general on Thursday held a conference call with analysts from Moody’s, Standard & Poor’s and Fitch Ratings to detail actions the state is taking to deal with the financial effects of Katrina, said Whitman Kling Jr., director of the Louisiana State Bond Commission.

Although some Louisiana municipalities have missed bond payments because of storm disruptions, none will seek bankruptcy protection, Kling said.

“No government entity can declare bankruptcy without going through the bond commission,” he said. “The administration, from the treasurer and the governor’s office, has categorically stated there will be no bankruptcies.”

In Mississippi, Treasurer Tate Reeves said the state and its local governments made their Sept. 1 debt payments. The state can tap funds totaling $1.2 billion to make future bond payments, Reeves said. That sum is four times the current annual debt-payment burden, he said.

The state Legislature will consider stepping in if cities and schools can’t meet their bond obligations, though it didn’t appear any issuers would default because of Katrina, Reeves said. “Local governments are taking steps to make their debt service payments, and every indication is that intervention by the state will not be necessary,” he said.

In a report, Moody’s said that Mississippi “remains financially strong and has ample reserves,” but that Katrina’s repercussions for the state’s economy “appear significant enough to warrant further review” of its debt ratings.

Moody’s now rates Mississippi general obligation bonds Aa3, a grade considered high quality. Other states with that rating include Connecticut, Montana and Wisconsin.

Louisiana’s general obligation rating from Moody’s is A1, the same grade as New York’s. Only one other state is rated lower: California, which has a grade of A2.

Moody’s said Louisiana had more than $3 billion set aside in trust funds, but it said an amendment to the state constitution would be required to tap those funds for debt payments.

Standard & Poor’s last week said it might cut ratings on $7.9 billion of debt sold by state and local municipal borrowers in Louisiana and Mississippi.

A key concern for bond owners is the possibility of a prolonged shortfall in sales and income tax revenue throughout the region.

Separately Thursday, a bond industry group proposed that states, cities and counties devastated by Katrina get federal cash advances to avoid bond defaults, and suggested federal authorization of a new type of tax-exempt bond to fund redevelopment.

The proposal by the National Assn. of Bond Lawyers calls for the creation of a bond similar to the $8-billion New York City Liberty Bond program created to aid rebuilding efforts after the Sept. 11, 2001, terrorist attacks.

A Treasury spokesman said he wasn’t able to comment on the proposal.