Moody's Investors Service had more upgrades than downgrades in the third quarter of 2015, and the upgrades also affected a larger dollar amount of debt than its downgrades.
It was only the second quarter since the third quarter of 2008 that Moody's public finance sector had both more upgrades than downgrades and more upgraded debt than downgraded debt. The last quarter this happened was the fourth quarter of 2014.
Moody's upgraded 172 credits and downgraded 132 credits in the third quarter.
In the quarter Moody's introduced a new tax increment debt methodology and this led to upgrades in a large number of California tax allocation bonds. This was a key factor in the upgrades.
Without the California TAB upgrades, downgrades would have outnumbered upgrades 132 to 125. Moody's also had a significant number of upgrades to local governments in Texas, Michigan, and New Jersey. However, the agency imposed far more downgrades than upgrades on Michigan local governments. Moody's also downgraded many local governments in Illinois, New York, and Pennsylvania.
"Michigan local governments downgraded in Q3 were overwhelmingly school districts, which on the whole continue to face declining enrollment, stagnant state aid and limited ability to increase revenues," said Moody's analyst Andrew Van Dyck Dobos. "Q3 downgrades may have been slightly above average because Moody's had access to more districts' full budgets to assess.
"The large number of local government downgrades for Illinois in Q3 can be attributed to the state government's budget impasse, which has resulted in delayed payments and underfunding of general state aid," Van Dyck Dobos said. "Districts that are less reliant on state-level funding have also seen a decline in property tax valuation."
In the quarter Moody's upgraded $61 billion and downgraded $46 billion. In terms of par value, its biggest downgrades were to Puerto Rico's general obligation and revenue ratings, to Caa3 from Caa2, affecting $38.6 billion in debt, and to the Metropolitan Water Reclamation District of Greater Chicago to Aa2 from Aa1, affecting $2.6 billion in debt.
The biggest upgrades were to New York's Metropolitan Transportation Authority, to A1 from A2 affecting $21.7 billion, to the North Texas Tollway Authority, to A1 from A2 affecting $7.3 billion, and the state of Michigan, raised to Aa2 from Aa3 affecting $5 billion.
Moody's rating changes on the infrastructure sector were overwhelmingly in the positive direction.
It upgraded 12 credits with $11.9 billion in debt and downgraded just one with $110 million in debt. The sector includes public power, airports, ports, toll roads, public/private partnerships, arenas, stadiums, hotels, and shopping centers.
