U.S. Public Finance Defaults Increased in 2015, Study Finds

U.S. public finance exhibited growing credit strength in 2015, though at a slower rate than in 2014, despite a rise in the number of defaults, according to a report published Wednesday by S&P Global Fixed Income Research.

Overall, upgrades outpaced downgrades by a ratio of 2.20 to 1 in 2015, compared with 3.33 to 1 the previous year. The ratio of upgrades to downgrades was 2.15 to 1 for bonds excluding housing and 4.27 to 1 for housing bonds. In the previous year, the ratio for nonhousing was 3.38 to 1, and housing had more downgrades than upgrades.

"In 2015, upgrades outnumbered downgrades in every quarter for the third consecutive year. The year ended with 13 straight quarters of more upgrades than downgrades, the longest streak since the first quarter of 2001," said Larry Witte, senior director of S&P Global Fixed Income Research. "In the midst of this, defaults increased to 12 in 2015 from eight in 2014. This continues a recent phenomenon of higher-than-average defaults, particularly among appropriation-backed debt."

In the last five years, the number of defaults among credits not including housing has exceeded the average of three going back to 1986, the agency said. There were 21 defaults of appropriation debt between 2011 and 2015, after only three in the previous 25 years.

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