Oil's Price Isn't Quite High Enough to Keep Louisiana's Credit Rating Afloat

  • S&P says state is dealing with ‘persistently weak revenue’
  • One-step downgrade comes ahead of $189 million bond sale

The stability in the price of oil hasn’t stopped the financial squeeze on Louisiana.

The Gulf Coast state’s credit rating was lowered by one notch to AA-, the fourth-highest grade, by S&P Global Ratings because of diminished tax collections tied to oil and gas production. The company said it has a negative outlook on the state, indicating it could be downgraded again. The step was made ahead of Louisiana’s $189 million bond sale planned for this month.

"The rating action reflects our view of the state’s persistently weak revenue collections stemming from prolonged contraction in the oil and gas industry coupled with weak individual and corporate income tax collections," S&P analyst Nora Wittstruck said in a statement.

Louisiana has been among the states hardest since the price of oil slid from over $100 a barrel nearly three years ago. Now at about $49, it touched $26 early last year.

Louisiana has struggled to close the shortfall left in its budget, having socked away less during the boom times than Texas or Alaska, said Gabe Diederich, a portfolio manager at Wells Fargo Asset Management.

“Part of what’s crimping their revenues at the state level and part of what’s contributing to this budgetary imbalance is not having come into this downturn in energy prices with as much cushion as some energy-related issuers,” Diederich.

S&P said the state has relied on one-time measures to close the deficit and has drawn down its reserves, making it financially vulnerable. About $1 billion of revenue-enhancing measures are set to expire in June 2018, the company said.