WASHINGTON - Fitch Ratings and Standard & Poor's issued gloomy first-quarter rating overviews during the past week, attributing a growth in downgrades to the sustained economic slump. Moody's Investors Service issued a similar report Monday.
The Fitch report, which also was published Monday, said the agency assigned more downgrades than upgrades during the quarter, while the Standard & Poor's ratio was still slightly tipped in favor of upgrades. But the number of Standard & Poor's downgrades far exceeded downgrades during the same quarter last year, the agency said Tuesday.
Fitch's underlying ratings for 40 credits were upgraded during the first quarter of 2009, but 56 credits were downgraded during the same time. In all, about $84.2 billion of debt was downgraded during the quarter - more than six times the debt that was upgraded. In all tax-supported sectors except tax-exempt housing, downgrades surpassed upgrades in number of rating changes.
Fitch found that the upgrade-to-downgrade ratio had worsened and was below 1 to 1 in the first quarter. The agency noted that downgrades had reached their highest number since at least 2002, when it began to issue quarterly rating change reports.
"The number of downgrades in the last quarter was nearly two-thirds of the total number of downgrades in all of 2008, and greater than the total number of downgrades in all of 2007," the report said.
California was responsible for most of the downgraded debt, but some debt issued in Florida, Tennessee, and Detroit also made up large shares of the dollar amount of downgraded bonds, Fitch said.
Standard & Poor's found a different trend in its analysis - that upgrades were still outnumbering downgrades in the first quarter of 2009 despite increased economic turmoil. However, the ratio of upgrades to downgrades did decline during the last quarter, to about 4 to 1 from about 16 to 1 in the previous quarter, the agency said.
"Further to this point, the 327 downgrades for the first quarter, including those in the housing sector, already exceed the total of 262 for all of 2008," the report said.
"What was driving our ratio of upgrades to downgrades has to do with the fact that we're also in the midst of reviewing our criteria," said Standard & Poor's analyst Howard Mischel. "As a result, there were upgrades to credits at the same time there were economic forces at play."
In addition, about half of the 511 tax-secured credits that Standard & Poor's upgraded were issued by Texas infrastructure districts that provide utility service or infrastructure.
"In our view, the relative stability of the Texas economy, to date, has served to further stabilize revenues for these districts and was also an underlying factor in our upgrade of more than 75 Texas municipalities and school districts during the quarter," the report said.
About 72% of the 189 downgrades the agency assigned were for state and local government appropriation bonds - again, mostly related to the California general obligation bond downgrade that Moody's and Fitch counted as a large factor in its actions.
The agency warned that while public power and electric utilities did well during the quarter - five upgrades and no downgrades - they may "experience significant challenges in 2009 stemming from economic uncertainty, environmental regulation, and higher capital operating costs."
In its report, Moody's said that all sectors including state and local governments had received a negative outlook during the quarter for the first time. Analyst Kimberly Lyons added that "more deterioration" is expected.