Fitch Ratings Says Louisiana Floods Could Stress State’s Cash Balance

The floods that damaged a significant portion of Louisiana’s capital region last month could stress the state’s narrow cash balance, but will not likely impact US commercial mortgage-backed securities (CMBS) deals in the near term, Fitch Ratings says.

The floods caused considerable damage to homes and businesses in nine parishes in the Baton Rouge region. The final damage tally remains uncertain but the governor’s current estimate is $8.7 billion. Significant reimbursement to homeowners from the Federal Emergency Management Agency (FEMA) has already begun with over $1 billion disbursed in the first few weeks of recovery. The state currently estimates its net direct operating expenses related to the floods (after FEMA match aid) to be $81 million and has requested $2.8 billion in federal funding for housing, agriculture and other infrastructure needs.

The state’s cash balances are relatively narrow and have been pressured by flood costs. Cash flow borrowing of up to $400 million through accessing lines of credit in the current fiscal year has been authorized. The likelihood of that borrowing being activated has risen with the flood, in Fitch’s view.

Louisiana currently anticipates a deficit for the fiscal year that ended on June 30, 2016, despite significant actions to close the gap. Prior to the flood, the state had planned to reduce operations expenses in fiscal 2017 to eliminate that deficit, as required by the state’s constitution. However, Fitch believes the cuts may be challenging as the need to reduce appropriations in fiscal 2017 will combine with unexpected flood costs.

Throughout the FEMA-defined emergency zone, Fitch rates CMBS deals with 103 loans totaling $1.2 billion in the region, and the average loan within the zone is $11 million. The largest loan (at $126 million) is for a mall in Lafayette. News reports indicate that the mall is not likely damaged, as aid organizations have been collecting donations at the property.

Over time we will consider the effects on state revenues and expenses from secondary damage to the area’s economy and business activity from the flood and subsequent recovery. The commercial real estate impact could also rise if commercial tenants do not return.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Photo: Louisiana Office of State Fire Marshal
Photo: Louisiana Office of State Fire Marshal

Flood summary

Last updated: August 19, 2016
Event
Louisiana, USA, August 2016
Date
August 12, 2016
Type
Flash flood, River flood
Cause
Extreme rainfall
A slow moving low pressure system dumped high levels of rain in a relatively small area in southern Louisiana from 12 August 2016.

Locations

A - Ascension
B - East Baton Rouge
C - East Feliciana
D - Iberia
E - Iberville
F - Livingston
G - St. Helena
H - St. James
I - St. Tammany
J - Tangipahoa
K - Washington
L - Lafayette
M - St. Martin
N - West Baton Rouge

Magnitude

Rainfall level
434 mm in 24 hours
Livingston - August 12 to August 13, 2016
Rainfall level
299 mm in 24 hours
Baton Rouge - August 12 to August 13, 2016
Rainfall level
283 mm in 24 hours
New Iberia - August 12 to August 13, 2016
Rainfall level
202 mm in 24 hours
Lafayette - August 12 to August 13, 2016

Damages

Fatalities
13 people
August 12 to August 16, 2016
East Baton Rouge Parish – 5 Tangipahoa Parish – 3 St. Helena Parish – 2 Livingston Parish - 2 Rapides Parish - 1