Fitch Ratings has dropped the ratings for 26 U.S. municipal bond issues supported by three major Japanese banks.

In May Fitch lowered the Japanese government’s foreign currency issuer default rating to A-plus with a negative outlook from AA.

Based on the government’s “weakened financial ability to support the banking system,” on Friday, Fitch downgraded the biggest Japanese banking groups. Specifically, it lowered to A-minus from A the Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and its subsidiaries, and Sumitomo Mitsui Trust Bank Ltd.

As a result, on Monday Fitch downgraded bank-supported variable-rate demand obligations in the United States. The long-term ratings of 26 bonds from 13 issuers were lowered. Since the banks’ short-term ratings are unchanged, the bonds’ short-term ratings were left unchanged. All outlooks are stable except for one for the Illinois Toll Highway Authority, which has a negative outlook.

The Fitch downgrades, in alphabetical order:

  •  An Austin refunding bond dropped to AA-minus from AA-plus.
  •  Two Bay Area Toll Authority, Calif., revenue bonds dropped to AA-minus from AA-plus.
  •  Two Houston refunding bonds dropped to AA-minus from AA-plus.
  •  An Illinois Toll Highway Authority revenue bond dropped to AA-minus from AA-plus.
  •  An Indiana Finance Authority revenue bond dropped to A-minus from A. 
  •  A Irvine Ranch Water District, Calif., refunding bond dropped to A-minus from A.
  •  An Irvine Reassessment District limited obligation bond dropped to A-minus from A. 
  •  A JEA, Fla., revenue bond dropped to AA from AAA.
  •  Two Kansas City, Mo., refunding bonds dropped to A-minus from A.
  •  A N.Y. Metropolitan Transit Authority refunding bond dropped to AA-minus from AA-plus.
  •  A Municipal Electric Authority of Georgia bond dropped to A-plus from AA.
  •  Six New York City general obligation bonds dropped to AA from AAA.
  •  Six New York State Energy Research and Development Authority revenue bonds dropped to A-minus from A.

Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking Corp. and-or Mizuho Corporate Bank provide letters of credit for the bonds.
When Fitch did not have a rating on the obligor, Fitch’s rating on the bank determined the long-term rating, said Fitch associate director Richard Park. If it did have a rating on the obligor, Fitch examined the bond’s structure to see if it met certain criteria. If it did, the agency set the rating as the higher of the bank’s or obligor’s ratings, Park said.

Because of this procedure, Fitch gave the six New York City bonds the city’s AA rating rather than the bank’s A-minus rating.

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