Alaska's issuer default rating was downgraded to A-plus from AA-minus by Fitch Ratings Thursday, affecting nearly $2 billion in debt.
The state’s ratings were also removed from rating watch negative, where they had been placed on March 27. The state’s outlook is negative.
The downgrade affects the state’s $670 million in general obligation bonds, which dropped to A-plus. The state’s $215 million in appropriation bonds and $1.1 billion in Alaska Municipal Bond Bank debt were lowered to A from A-plus.
The downgrade to Alaska’s IDR and GO rating “reflects the severe financial and economic stress the state is undergoing as a result of the recent plunge in crude oil prices compounded by the negative impact of the coronavirus pandemic, particularly on the state’s important fishing and tourism industries,” Fitch wrote.
“Alaska’s steady draws on budget reserves to fund operations in recent years, leaves the state in a weakened position to address these twin upheavals,” Fitch wrote.
Continued, sizeable draws on the state’s primary budget reserve, the Constitutional Budget Reserve Fund, are budgeted for fiscal years 2020 and 2021, and the CBRF is expected to be nearly depleted in fiscal 2021, according to Fitch.
“The elimination of this important budget tool further reduces the resiliency of the state’s financial position given the significant volatility in the portion of the state’s revenues that is derived from petroleum production,” Fitch wrote. “The negative outlook reflects the direction the rating is likely to move should the state be unable to enact measures in the next budget cycle that produce sustainable fiscal balance.”
