Fitch Ratings downgraded nearly six times more public-finance debt value than it upgraded in 2011. This indicates deterioration in U.S. public finance ratings from 2010, when Fitch downgraded twice as much par value as it upgraded.
Both statistics come from Fitch’s “U.S. Public Finance Rating Actions 2011” report, released Tuesday. The deterioration in ratios measuring rating actions was not as great as it was for par values. While 2010 had a ratio of downgrades to upgrades of 1.6 to 1, 2011 had a ratio of 2.1 to 1.
“High unemployment and stagnant home prices are still weighing on municipalities and will continue to do so until both trends show sustained improvement,” said Sarah Repucci, a senior director at Fitch. “Most states and local governments are still employing spending control and cuts to achieve budget balance.”
Fitch left unchanged the ratings of more than 80% of municipal credits and downgraded less than 8% of them.
In 2011, Fitch downgraded Hawaii, Minnesota and New Jersey one notch each. It upgraded West Virginia one notch.
The ratio of negative outlooks to positive went to 4.5 to 1 in 2011 from 4.2 to 1 in 2010. The ratio of negative watches to positive went to 29 to 1 in 2011 from 8 to 1 in 2010.
Fitch explained the factors facing the public finance sectors. For local governments, “a lack of recovery in property taxes and state aid, combined with growing pension funding costs, further reduced financial flexibility for local government issuers,” it said. “The ability to reduce expenditures was key to balancing budgets.”
The health care sector saw 23 downgrades and 19 upgrades.
“Hospitals and health care providers have focused their efforts on improving operating efficiencies and clinical outcomes and implementing various expense-control initiatives to maintain profit margins,” Fitch said.
Capital spending as a percentage of depreciation expense fell.
The water and sewer sector had 36 downgrades and 14 upgrades. More than 90% of the downgrades were caused by weak financial performance caused by poor sales and failure to implement rate adjustments.
The public power sector experienced 21 downgrades and 14 upgrades. The sector was stable this past year, Fitch said.
“It is important to note that 12 of the 21 downgrades were to prepaid energy transactions,” the agency said. “Given the structured nature of prepaid energy transactions and the different components of pledged revenues, ratings generally reflect Fitch’s assessment of the structural enhancements and relevant counterparties.”
Moody’s Investors Service on Monday reported downgrades outnumbered upgrades in 2011 by a ratio of 4.1 to 1, a deterioration from the ratio of 2.2 to 1 found in 2010.