Ratings Agencies Note Negative Trend in US Public Finance
Fitch Ratings notes a significantly negative trend in U.S. Public Finance rating actions during the first quarter of 2009, accelerating a decline in municipal credit from 2008. This deterioration reflects the severe recessionary macro-economic environment, dislocations in the credit markets, and increased fiscal and liquidity pressures, Fitch said.
In 1Q’09, Fitch’s U.S. Public Finance group upgraded underlying ratings on only 40 credits totaling $12.9 billion in par value, while it downgraded underlying ratings on 56 credits totaling $84.2 billion.
This resulted in an upgrade-to-downgrade ratio of only 0.71:1 in terms of rating changes and a ratio of 0.15:1 on a par value basis. This was considerably worse than the annual ratios for 2007 and 2008, which were 3.67:1 in terms of rating changes and 8.6:1 in terms of par value and 1.59:1 in terms of rating changes and 5.13:1 in terms of par value, respectively.
Fitch notes also that last quarter saw the largest number of Fitch U.S. Public Finance rating downgrades since at least 2002, when Fitch began reporting quarterly municipal rating change totals.
The number of downgrades in the last quarter was nearly two-thirds of the total number of downgrades in all of 2008 and greater than the total number of downgrades in all of 2007.
The bulk of the par value in downgrades was attributable to the state of California. Other significant downgrades were in Florida, Tennessee, and Detroit, Michigan.
During 1Q’09, there were 20 upgrades and 29 downgrades in the tax-backed sector, four upgrades and eight downgrades in healthcare, six upgrades and seven downgrades in water & sewer, three upgrades and five downgrades in public power, no upgrades and four downgrades in transportation, and four upgrades and no downgrades in tax-exempt housing.
The ratio of Positive to Negative Rating Watches and Outlooks indicates the declining trend in public finance ratings is likely to continue for some time, Fitch concludes.
Moody’s ratio of municipal scale upgrades to downgrades deteriorated to 0.8 to1, from the fourth quarter’s 1.1 to 1. The most recent quarter marked a low point for this ratio, falling below the 1.1 to 1 set in the first quarter of 2003 following the last recession. The ratio of upgrades to downgrades based on affected par value also weakened further, falling to 0.1 to 1 from the fourth quarter’s 0.7 to 1.
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