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Letter to the Editor

S&P Defends Its Downgrade

We would like to address several inaccuracies and misconceptions reflected in your Aug. 17 article "Los Angeles Boots S&P Pool Rating; City Angry Over Downgrades."

With respect to the rating change on the United States, consistent with our criteria, the downgrade was prompted by our view of the rising public debt burden and our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.

In addition, there was no "error" in our analysis. After discussions with the Treasury and the Congressional Budget Office, we adjusted our fiscal assumptions to conform them to the CBO's scoring of the Budget Control Act Amendment of 2011.

The credit rating change made by S&P on the government investment pool and its recent downgrade does not signal a change in our view on the credit quality of its sponsor, the City of Los Angeles.

The U.S. sovereign rating does, however, limit the ability of a government investment pool like Los Angeles' to achieve an AAAf rating according to our published criteria.

But the fund's rating of AAf reflects our opinion of a very strong capacity to meet financial commitments.

Our ratings provide a relative ranking of credit risk to the investment community. While conscious of the possible impact that a rating downgrade may have, it does not prevent us from acting when we believe it is necessary.

Paul Coughlin
Executive managing director
Corporate and government ratings
Standard & Poor's

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