NEW YORK — Standard & Poor's Ratings Services Thursday published the 2011 update to its U.S. public finance default and rating transition study, "U.S. Public Finance Defaults And Rating Transition Data: 2010 Update."
The data suggest: cumulative average default rates continue to maintain a rank ordering commensurate with the rating category; USPF ratings tend to be more stable in higher rating categories; and overall, the USPF sector remains significantly stable in nature and of sound credit quality, although defaults have occurred across all sectors.
As a general proposition, for the years relevant to Standard & Poor’s study, unenhanced debt (i.e., debt obligations not supported by financial guarantees, structuring techniques, multiple-party features, or other external credit support) rated by Standard & Poor's has shown significant credit stability throughout a broad range of events, including a changed economic environment, federal government mandates, tax reform measures, and any number of influences on general credit.
Five USPF (non-housing) issues defaulted in 2011, compared with an annual mean of 1.8 and a median of 1 default since 1986 (see charts 1 and 2). Two of the defaulted issues in 2011 held investment-grade ratings prior to defaulting while three held speculative grade ratings prior to defaulting. There was one housing sector issue default, which held a speculative grade rating prior to defaulting. Compared to previous years, the number of defaults in the USPF sector remained low, reflecting, in Standard & Poor’s view, the generally resilient nature of the sector overall.
From a rating transition perspective, downgrades exceeded upgrades in 2011, reversing a trend of upgrades outpacing downgrades during the previous several years. Standard & Poor's believes this reflects the consequences of, and the slow and uneven economic recovery from, the recession. That the downgrades only began to outpace upgrades in the second half of 2011 partially reflects, in Standard & Poor’s view, the lagged effect of the recession on certain USPF obligors' tax revenues.