Buy Side

Moody's Downgrades $10 billion in Garvees

NOV 15, 2012 5:30pm ET

Moody's Investors Service has downgraded 27 grant anticipation revenue vehicle bonds, totaling about $10 billion in par value.

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Comments (1)
This is a tough situation that led to a logical rating, which works very well for private business, but can be a struggle when rating government debt.

For example, in earlier discussions on the new transportation authorization the U.S. House of Representatives proposed an initial bill that would have cut the transportation program by 35% to "live within the means of the Federal Highway Trust Fund", which makes logical sense. However, the U.S. Senate rejected this approach and proposed a bill that was the same level or a littler higher than the prior year, which relied on a myraid of budget gimmicks (deficit funding) to add amounts over what is projected for the Federal Highway Trust Fund, which is not logical from a business perspective.

Why would the Senate do this? The political reason is the Federal Transportation Program provides more than 50% (much higher in many cases) of the highway funding in more than 30 states for the State DOTs. The political logic of this is that these 30 plus states will let their 2 senators know the economic impact of a major reduction in the highway funding for their state. In the U.S. Senate it takes 60 votes to pass or to stop an action. This logic is what carried the day and has for many years to ensure funding increases occured in the past
Posted by Lowell C | Thursday, November 15 2012 at 6:07PM ET
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