Public finance rating downgrades by Fitch Ratings continued to outnumber upgrades during the fourth quarter of 2012.

From October to December Fitch downgraded 41 ratings and upgraded 15 ratings, making it the 16th consecutive quarter where public finance downgrades exceeded upgrades. The total amount of rating actions was down from the prior quarter, when Fitch downgraded 54 credits and upgraded 22 credits.

While there were more downgrades, they amounted to a small percentage of total rating actions. The 41 negative rating changes represented 5.2% of all rating actions and $31.9 billion in par value. The 15 upgrades represented 1.9% of all rating actions and $7 billion in par value.

The majority of rating actions, or 84%, were affirmations, with no change in outlook or watch status.

The total amount of negative outlooks has increased from the end of September. By the end of the fourth quarter, there were 232 credits with a negative outlook, which represents 6.3% of total public finance securities. That amount was up from 5.9% from the third quarter. The 1.7% share of the 61 positive outlooks remains virtually unchanged from the prior quarter.

"The increase in negative rating outlooks was primarily due to the revision of the rating outlook to negative from stable for housing bonds whose repayments are secured by guarantees issued by agencies of the U.S. government," analysts said in a report.

On a brighter note, about 91% of the outlooks remained stable.

In addition, Fitch reported that the amount of negative watches had decreased from 65 in the third quarter to 50 in the fourth quarter.

"That number is still largely driven by Fitch's ongoing review of charter schools," the report said. "Fitch placed its entire portfolio of charter school credits (33 schools) on rating watch negative in the third quarter."

The ratings are being reviewed as a result of changes to the charter school criteria. There were no positive rating watches during the quarter.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.