Credit rating agencies mostly changed their outlooks in response to the pandemic

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Jane Ridley of S&P Global is a senior director in the U.S. Public Finance Government Group and serves as a sector lead for local governments.

Officials from the four municipal bond credit rating agencies said Wednesday most of their actions taken as a result of the COVID-19 pandemic have been outlook changes rather than credit downgrades.

The four officials addressed an audience of bond issuers who participated in an online conference sponsored by the Government Finance Officers Association.

The credit rating agencies said many issuers weathered the early months of the pandemic with a surprising level of liquidity from the reserves they had built up over the years since the end of the Great Recession and also had multiple tools to deal with the economic downturn.

“There are not a lot of rating changes in public finance,” said Tim Blake, managing director of Moody’s Investors Service. Blake said Moody’s has not changed its methodologies for rating local governments but did for K through 12 school districts.

Ninety percent of the more than 1,000 actions taken by S&P Global Ratings have been outlook changes, said Jane Ridley, S&P Global’s senior director in the U.S. public finance government group and a sector lead for local governments.

“We certainly don't expect all those negative outlooks to change into rating changes,” Ridley said, adding that S&P Global does want issuers to explain what their budget plans are for dealing with the next two years.

Arlene Bohner, head of U.S. public finance for Fitch Ratings, said the majority of actions taken by her credit rating agency also have been outlook changes.

Karen Daly, senior managing director at Kroll Bond Rating Agency, highlighted the airport sector as an example.

“We have most of the credits in the sector on negative outlook in that it reflects the uncertainty that's been going on for months and months,” Daly said.

However, Daly cited a recent KBRA report on airports that found “that particular bond sector has benefited from the expansion and the enhancement of reserves as a result of the recent expansion.”

In addition, airports benefited from the CARES Act passed by Congress because they were allowed to use that federal aid to make debt payments.

Fitch’s Bohner said her agency was concerned about the liquidity of issuers early in the pandemic but was surprised to find out how well issuers were generally coping.

Ridley said most of the rating changes done by S&P have been issuers “like convention centers that have, you know, hotel, occupancy taxes, and food and beverage taxes, and those kinds of things that really cratered.”

S&P doesn’t see that sector quickly rebounding. “It will really be a struggle,” Ridley said. “You still can't have concerts.”

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S&P Moody's Fitch GFOA Washington DC