Downgrades made up 83% of Moody’s Investors Service’s public finance ratings changes in the second quarter of this year, the ratings agency said.
Of the 264 changes made during the quarter, 219 were downgrades, Moody’s said in a report released Friday.
The percentage of downgrades was roughly the same as for all of 2012, when rating downgrades accounted for 82% of Moody’s overall rating changes.
The par amount of public finance debt downgraded in the second quarter was $92 billion, an increase from $27 billion in the previous quarter. The par amount upgraded for the second quarter was $12 billion, which was similar to the previous quarter.
“We expect the high pace of downgrades to continue in 2013 for most sectors,” Moody’s assistant vice president Eileen Hawes said in a release. “Although the US economy overall continues to indicate a trend of slow recovery, there are regional and intra-regional differences in the pace of recovery, and revenue and budgetary challenges remain for many entities.”
More than half of the par amount of debt downgraded in the second quarter came from a few large issuers. The largest action was the downgrade of $32 billion of Illinois general obligation and sales tax bonds to A3 with a negative outlook from A2. Moody’s said the downgrade was triggered by the state’s continued pension funding burdens and the looming expiration of income tax increases.
Other notable downgrades included the one on Detroit’s GO and related ratings, impacting $2.5 billion of debt, and on Detroit water and sewer revenue bonds, affecting $5.9 billion of debt, according to the rating’s agency.
Several rating drops affecting a large amount of debt occurred in the infrastructure sector. Downgraded issuers primarily consisted of airports and municipal electric utilities but also included one toll road.
The Long Island Power Authority was downgraded to Baa1 with a negative outlook from A3, in part because the authority is highly dependent on unpredictable reimbursement of costs pertaining to Superstorm Sandy from the Federal Emergency Management Agency. That downgrade affected $7 billion of debt. The Puerto Rico Electric Power Authority’s $8.2 billion of debt was downgraded to Baa3 with a negative outlook from Baa2 because of the authority’s ties to the Commonwealth of Puerto Rico, Moody’s said.
There were seven downgrades and five upgrades in the higher education and other nonprofit category. The ratio is significantly different from the previous five quarters, when downgrades far outnumbered upgrades, Moody’s said. The downgrades last quarter included the Aa2 to Aa3 change for Rutgers, the State University of New Jersey, affecting $1.8 billion of debt.
In the nonprofit health care sector, there were twice as many downgrades as there were upgrades during the second quarter. Of the 14 downgraded hospitals, 11 were small providers with less than $500 million in revenues, Moody’s said.
There were 45 downgrades in the housing sector during the second quarter, but most of those changes were related to alternations in Moody’s rating methodology on stand-alone housing bond programs with credit-enhanced mortgages, the rating agency said.