OREANDA-NEWS. Louisiana's fiscal 2016 budget uncertainty could result in substantial reductions in state higher education funding, as proposed in the governor's executive budget. Such uncertainty does not have an immediate effect on Louisiana State University's (LSU) auxiliary revenue bond rating, according to Fitch Ratings. However, corresponding university budget adjustments that affect its financial position, reputation, or demand profile, to the extent they become necessary, could have negative rating implications. This underscores the interrelationship of the university's overall credit profile and auxiliary enterprise operations. Support for auxiliary enterprise-related debt relies on continued student demand.

LSU is developing financial contingency plans in light of the uncertainty. However, the university clarified on Friday that it has not begun the process of filing for financial exigency, which is a mechanism to adjust expenses, including costs of faculty and other employees, when extraordinary financial circumstances threaten an institution. Financial exigency, as included in the Louisiana State University System Board of Supervisors Bylaws and Regulations, does not provide a mechanism to defer or adjust university debts.

Today, Fitch withdrew the rating on LSU's series 2015 auxiliary revenue bonds commensurate with the university's decision to cancel that sale. The rating withdrawal does not affect the 'AA-' rating on LSU's outstanding parity debt.

Fitch will monitor the situation as the state's legislative session continues through June 11th. For more information on LSU, please see Fitch's research available at 'www.fitchratings.com'.