Due to the economic and financial conditions issuers are facing, Fitch Ratings will continue to suspend its review of its U.S. municipal ratings framework, the agency said Monday.
Fitch last July released an exposure draft detailing a possible plan to move its municipal credits to a global scale. But in October, the agency postponed its final decision on the plan and said it would revisit it in the first quarter of the new year.
Fitch said it will once again review its municipal framework when economic and market conditions "sufficiently stabilize."
"The severity of the current economic downturn and market disruptions, and the financial challenges these conditions pose to municipal issuers, continue to exceed Fitch's expectation when Fitch published its exposure draft last summer," the agency said. "Fitch expects continued credit volatility in all sectors, including municipals."
Economic conditions have continued to weaken, borrowing costs have risen, and market access remains limited for lower-rated municipal credits, Fitch said. The stimulus package will likely "provide some short-term budget relief to states and help avoid state education reductions to local governments," but the effectiveness of other measures to stabilize the economy remains uncertain, it said.
When Fitch once again reviews its municipal framework, it says it will first determine if a recalibration is necessary, and then if necessary make changes to its original proposal. In its exposure draft, Fitch said it expected 86% of state and local general obligations to be rated in the AA or AAA categories, compared to 58% under the current scale.
Moody's Investors Service last year also detailed its own plans to move to a global scale, but delayed them in October amid the credit crisis.
Standard & Poor's says it has always only had one scale, but upgraded thousands of municipal credits last year as a result of an updated default study.
Fitch said it had been noting in its reports of municipal tax-backed and water and sewer credits the proposed recalibration, which could have led to upward revisions. The agency said given the suspension of the review for an indefinite period of time, it will no longer include this note.