Mississippi Gov. Phil Bryant said Fitch's lower general obligation rating for the state will not affect its ability to issue bonds or increase borrowing costs.

BRADENTON, Fla. – Mississippi absorbed a downgrade from Fitch Ratings, which cited weaker-than-expected performance.

Fitch dropped Mississippi's issuer default and general obligation ratings one notch to AA from AA-plus.

Fitch also attributed the downgrade to its revised criteria on how it rates state and local governments, which were implemented April 18.

The action affects $4 billion of outstanding state GOs. The outlook is stable, Fitch said in a report Friday.

"The AA rating reflects the state's strong control over spending and revenues and generally conservative financial practices, providing significant financial resilience," said analyst Karen Krop. "Liability levels are moderate, albeit well above average for a U.S. state, while economic growth is likely to be below average."

Krop also said that the state is beginning fiscal 2017 with an enacted budget that assumes slower revenue growth, although there may be pressure to remain in balance due to a reported mistake in revenue estimation that opened an immediate $57 million gap.

While the gap is only 1% of anticipated revenues, Krop said it points to the need for "ongoing budget management to sustain balance."

When asked to comment about the downgrade, Gov. Phil Bryant said in an email that at least two other states have been affected by Fitch's new rating criteria.

"Fitch is now rating the state at the level of the other agencies," Bryant said, adding that the lower marks "will not affect borrowing ability nor will it result in additional costs when we engage the capital markets."

Mississippi's GOs are rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings.

"However, this is a good reminder that conservative fiscal policies and sound budgeting are the only path forward for Mississippi to remain on solid financial ground," Bryant said.

Bryant did not respond to questions about the mistake in revenue estimates or how the state will address the $57 million gap.

At the same time Fitch downgraded the state on Friday, it also assigned AA-minus ratings to the Mississippi Development Bank's upcoming sale of $118.4 million of special obligation refunding bonds on behalf of the Department of Corrections.

The bonds are expected to price via negotiation around July 19.

Fitch also downgraded to AA-minus from AA MDB's $201 million of outstanding bonds previously issued for corrections facilities.

Because the security for the MDB's special obligation bonds ultimately rests with the state for the annual legislative appropriation, Fitch said the debt is rated one notch below the state's issuer default rating.

Two other states and the Commonwealth of Puerto Rico have been downgraded by Fitch since it implemented the new U.S. Tax-Supported Rating Criteria to include more information about revenues and expenditures, long-term liability burdens, and operating performance within the context of an issuers economic base.

Fitch downgraded Puerto Rico's GO general obligation bond ratings to D from C earlier this month, while Alaska's GOs were dropped to AA-minus from AAA in June, and Connecticut's GOs were lowered to AA-minus from AA in May.

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.