For the 12th consecutive quarter downgrades outnumbered upgrades in Moody’s Investor Services quarterly public finance report.
In the fourth quarter downgrades outnumbered upgrades by a 4.8-to-1 ratio, a slight improvement from the 5.3-to-1 ratio found in the third quarter.
The third quarter’s ratio was the worst since the economic downturn began late in the previous decade.
On a brighter note, the amount of downgrades by par value in the forth quarter were less than half that found in the third quarter.
Local governments did worse than state governments in the fourth quarter. The ratio of downgrades to upgrades was 5.8 to 1 for the former, while there were no rating changes for states in the fourth quarter.
The downgrade-to-upgrade ratio for 2011 was 4.1 to 1, up from 2.2 to 1 for 2010.
Only 4.7% of the roughly 13,700 unique Moody’s-rated obligors experienced a rating change in 2011.
Notable downgrades in the forth quarter include the San Diego Unified School District, to Aa2 with a negative outlook from Aa1, affecting $1.6 billion of debt. The West Penn Allegheny Health System in Pennsylvania was downgraded to Caa1 with a negative outlook from B2, affecting $737 million of debt.
In other rating agency news, Standard & Poor’s has announced that it will change its criteria for local government general obligation bonds.
S&P is currently reviewing its criteria for both bonds and issuers. The review is only for local governments that are not special-purpose districts. Examples districts include school districts, library districts, park districts and forest preserve districts.
The criteria change will not affect states or state-issued bonds.
“The primary purpose of the review is to increase transparency as to how U.S. local government GO ratings are derived and enhance the comparability of U.S. public finance GO ratings with other sectors,” S&P stated.
When asked whether the new criteria will generally move ratings down or up, Standard & Poor’s spokesman Ola Fadahunsi said, “It’s unlikely that the majority of the ratings will change.”
The next step will be for S&P to release its proposed changes and take public comments. Agency officials wouldn’t say when this would be.
Once the new criteria are adopted by S&P it will take some time for them to be applied to all of its local credits. Each quarter S&P reviews only a fraction of the ratings of the local credits it rates.
