Fitch Downgraded More Often, S&P Lifted Ratings in 3Q

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WASHINGTON — Fitch Ratings made more U.S. public finance downgrades than upgrades during the third quarter of 2013, while Standard & Poor’s boosted more ratings than it cut, the rating companies said in reports this week.

During the third quarter, Fitch downgraded 39 U.S. public finance credits and upgraded 23. That amounts to 1.7 downgrades for each upgrade, compared with 2.8 downgrades for each upgrade in the second quarter, the rating agency said.

The 39 downgrades affected only 25 issuers, because some of them were for related securities. Thirty one of the downgrades were for tax-supported credits, and the remainder were in the health care, housing and public power sectors, Fitch said.

The largest downgrade by par amount was for $10.9 billion of Pennsylvania general obligation debt. Fitch lowered the GO debt to AA from AA+ because of “the commonwealth’s failure to adequately address key fiscal pressures,” and downgraded $2.36 billion of bonds supported by the state’s appropriations.

The largest upgrade by par amount was on California’s $72 billion of outstanding GO debt to A from A-minus. “The upgrade was based on institutionalized changes to fiscal management in recent years, which combined with the ongoing economic and revenue recovery, have enabled the state to materially improve its overall fiscal standing,” Fitch said.

The rating agency made both fewer upgrades and fewer downgrades in the third quarter than it did in the second quarter. At the end of the quarter, negative rating outlooks exceeded positive rating outlooks by a ratio of 3.2 to 1. However, the ratio of negative to positive rating outlooks is at its lowest since the third quarter of 2009, Fitch said.

Standard & Poor’s during the third quarter made 2.81 upgrades for each downgrade in U.S. public finance, excluding the housing sector. In the second quarter, there were 2.05 upgrades for each downgrade, and in the first quarter, there were 1.57 upgrades for each downgrade, the rating agency said.

“A combination of sustained — albeit gradual — revenue growth and restrained budget management contributed to another quarter in which upgrades outnumber downgrades across the U.S. public finance sectors,” Standard & Poor’s said.

Ratings on the state and local government, utility and transportation sectors were raised more often than they were loweredduring the third quarter, while the grades onnot-for-profit health care, housing and higher education and other not-for-profit sectors were reduced more often.

The state and local government sector had 280 upgrades but just 83 downgrades, a ratio of 3.37 to 1, Standard & Poor’s said. One notable upgrade was for Texas, which became Standard & Poor’s 14th triple-A rated state on Sept. 27. The upgrade reflects Texas’ post-recession economic performance and its strong cash and budget management.

The rating agency rolled out revised rating criteria for local government GO debtin mid-September, which led to 63 of the state and local government sector’s upgrades and four of the downgrades. One upgrade under the new criteria was East Providence, R.I., which was lifted to A from BB+ due to improvements in the city’s financial performance, flexibility and liquidity.

Standard and Poor’s made 24 upgrades and 12 downgrades in the utility sector during the quarter. The rating agency made three upgrades in the public power, public gas and electric cooperatives subsector. It raised 21 ratings and lowered 12 ratings in the water, sewer and solid waste subsector.

In the transportation sector, Standard & Poor’s made three upgrades and two downgrades during the third quarter. In the health care sector, the rating agency made seven upgrades and eight downgrades.

In the higher education and other not-for-profit sector, there were nine downgrades and six upgrades. The downgrades were two private universities, one public university auxiliary issue, one public university unlimited student fee issue, two nonprofit institutions and three specialty colleges. The upgrades were for two public universities, three private universities and one nonprofit institution, Standard & Poor’s said.

There were 12 upgrades and 13 downgrades in the housing sector, with most of the downgrades occurring because of declining financial performance, the rating agency said.

While the number of U.S. public finance upgrades outnumbered downgrades in the third quarter, there were also five defaults, Standard & Poor’s said.

The rating agency made 32 multiple-notch downgrades in the quarter, up from 10 such downgrades in the second quarter and 20 in the first quarter. The multiple-notch downgrades made up 6.8% of rating actions in the quarter, Standard & Poor’s said.

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