NEW YORK - Moody’s Investors Service kicked off a wide-scale “upward shift” in municipal credit ratings on Monday, assigning stronger grades to 34 states and Puerto Rico.
This is just the first salvo in what is likely to be a four-week blizzard of ratings “recalibrations” among most of the 18,000 states and localities whose debt Moody’s rates.
Of the 16 states not assigned a higher rating, nine could not go any higher because they were already rated triple-A.
Four — Florida, Minnesota, Kansas, and Washington — previously were rated Aa1, which the recalibration algorithm Moody’s published last month did not bump to a higher rating. The outlooks for all four states were raised to stable from negative.
Moody’s does not assign ratings to the remaining three — Nebraska, South Dakota, and Wyoming.
Moody’s has long held municipalities to a different rating standard from sovereign governments, corporations, or structured products.
The scale represented a ranking of municipal credit quality based on “distance to distress” rather than default probability.
This generally meant municipalities have been stuck with lower ratings than other types of issuers despite what in many cases were stronger histories of repayment.
Last month, the agency said it was going to recalibrate its municipal ratings scale to align it with the scales assessing the creditworthiness of other types of issuers.
Moody’s plans to standardize the scales so that all borrowers are assessed on the same criteria, and a rating means the same thing regardless of whether the issuer is a city, a sovereign nation, or a retail chain.
Fitch Ratings earlier this month began enacting a recalibration on similar grounds, lifting ratings on tens of thousands of municipal bonds.
Under the Moody’s recalibrations announced Monday, the biggest gainers were California and Puerto Rico.
Each was bumped three notches — the maximum ratings ascension under the recalibration.
California is now rated A1. Puerto Rico is rated A3.
Five states — Indiana, Tennessee, Texas, New Mexico, and Iowa — are newly rated Aaa.
Moody’s still plans to recalibrate ratings for local governments and housing and enterprise issuers.
