WASHINGTON More than three-quarters of U.S. public finance rating changes made by Moodys Investors Service in the third quarter of 2013 were downgrades, reflecting concentrated credit pressures in some areas of the country even as economic recovery is seen on a larger scale.
Of the 235 third-quarter rating changes, 182, or 77%, were downgrades, the rating agency said in a report Monday. In the second quarter, 83% of rating changes were downgrades, Moodys said. During the third quarter, $53.9 billion of debt was downgraded and roughly $8 billion was upgraded. Moodys predicts that downgrades will continue to outpace upgrades through the end of the year.
The preponderance of local government downgrades underscores the credit pressure some local governments continue to face, Moodys Analyst Chandra Ghosal said in a release. We also see that despite broader economic improvement, there are still regional pockets of concentrated credit pressure.
More than 40% of the third-quarter downgrades were for credits in California, Illinois, and Michigan. The downgrades in these three states comprised more than half of the total par value downgraded, the rating agency said.
The upgraded credits, spread across 25 states, were less regionally concentrated than the downgraded ones. The largest upgrades by par value were $3.1 billion of Atlanta Water and Wastewater debt and $1.4 billion of Indiana University Health debt, Moodys said.
Local government downgrades far exceeded upgrades, with 145, or 82%, of rating changes in the sector being lowered. According to Moodys release, eight of the top 10 largest downgrades in terms of par value were local governments.
High profile local-government downgrades included those for Chicago, Cook County, Ill., Cincinnati and Minneapolis. The downgrades for these issuers and 15 other credits were related to Moodys new approach for analyzing state and local government pensions.
The only state-related credit downgrade during the quarter was Rhode Island motor fuel tax revenue bonds, which were lowered to A3 from A2. That downgrade occurred as a result of tapering pledged revenues and declining debt service coverage, Moodys said in its report.
No state or state-related credits were upgraded, but the outlook of the states sector was changed to stable from negative. Six states had their individual rating outlooks revised to stable, and New York had its outlook revised to positive, the rating agency said.
Moodys made 10 downgrades and eight upgrades in the not-for-profit health care sector. Decreases in patient admission volume was a main factor in six of the downgrades.
There were 16 downgrades and three upgrades in the higher education and other not-for-profit sector. Moodys said in its report that it lowered the ratings for seven of the eight public universities in Illinois as a result of the schools high dependence on state funding, which has been delayed or reduced for consecutive years.
In the infrastructure sector, Moodys made eight downgrades and no upgrades. The downgrades affected six unique issuers, four of which had previously been given negative outlooks. Two of the downgraded issuers are municipal electric utilities with exposure to nuclear-generation assets, highlighting the higher costs and risks associated with ownership and operation of such facilities, Moodys said.
The housing sector had 10 upgrades and only two downgrades in the quarter.
Fitch Ratings and Standard & Poors released their third quarter ratings statistics last week. Fitch made more downgrades than upgrades during the quarter, while the opposite was true for Standard & Poors.
Naomi Jagoda is a reporter for The Bond Buyer.
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