OREANDA-NEWS. 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 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.