Moody’s Investors Service raised Louisiana’s general obligation bonds and issuer credit rating to Aa2 from Aa3 Wednesday, citing significant progress the state has made restoring its financial reserves and liquidity.

Despite a trend that sees a decline in production and a rise in volatility for its gas and oil industries along with unfavorable demographics, the state has structurally aligned its revenue and spending, the rating agency said.

Louisiana’s outlook, previously positive, was revised to stable at the new higher rating.

At the same time, Moody’s upgraded to Aa3 from A1 the ratings on the state’s lease appropriation custodial receipts, the Louisiana Transportation Authority’s bonds, the New Orleans Federal Alliance project bonds, Louisiana State Capitol Complex program bonds, I-49 North Project & I-49 South Project unclaimed property special revenue bonds,
Hurricane Recovery program bonds and the Tollroad refunding bonds.

Moody’s also raised to A1 from A2 the lease appropriation LCTCS Facilities Corp. project bonds, BRCC Facilities Corp. project bonds, Millennium Housing LLC bonds, and the South Louisiana Facilities Corp. project bonds.

Additionally, Moody’s upgraded to Aa3 from A1 the state’s tax-backed state highway improvement revenue bonds.

Moody’s affirmed the Aa2 and Aa3 ratings on the state’s gasoline and fuels tax bonds; the rating outlook on these is stable.

The action affects approximately $8 billion in debt.

With 4.6 million residents, Louisiana is the 25th biggest state by population with a gross domestic product that the 26th largest in the U.S. The state has below-average wealth, with 2021 per-capita personal income equal to 86% of the national level, and has among the highest poverty rates in the country.

The state’s GOs are rated AA-minus by S&P Global Ratings and by Fitch Ratings.

Moody’s said the issuer rating also incorporates the state’s vulnerability to the volatility in the energy sector and its exposure to social risks, including slow population growth, low per-capita personal income and a low labor force participation rate, and its above-average exposure to environmental risk, particularly hurricanes and flooding.

The state’s Aa2 GO rating is the same as the issuer rating because the state pledges its full faith and credit to the bonds.

“The state’s stable outlook reflects its powers to balance its budget in response to economic shocks and cautious financial management practices that help mitigate the state’s exposure to financial volatility and weak economic fundamentals,” Moody’s said.

The stable rating outlook on the state highway improvement revenue bonds and gasoline and fuels tax bonds reflects the rating agency expectation that revenue trends will continue to provide adequate and stable debt service coverage, according to the agency.