WASHINGTON — The number of municipal bond issuers rated as “speculative” by Moody’s Investors Service has grown by 27% since 2008 and will likely grow further but remain a small part of the market, the rating agency said in its annual report on junk bond issuers.

The report shows that the number of muni bond issuers rated Ba1 or below by Moody’s currently stands at 217, accounting for $48 billion of outstanding debt. That number is up from 171 in 2008, but is still less than 2% of the 15,000 tax-exempt bond issuers in the U.S, the rating agency said.

The report previously covered only local governments rated at junk status, but Moody’s expanded it this year to include other issuers of below investment-grade debt, such as higher education, health care, infrastructure, and housing.

“We expect the number of speculative-grade issuers will continue to rise, but we also expect it to remain a very small share of the overall municipal market,” said Moody’s Vice President Al Medioli.

Local governments still account for the majority of issuers’ junk ratings, representing 99 of the 217 speculative-grade issuers. Moody’s found. The health care and housing sectors each featured 35 issuers on the Moody’s list, while infrastructure issuers popped up 29 times. Education issuers accounted for 17 of the 217, while state-level government issuers accounted for two.

The report found that junk-rated issuers are mostly rated only a notch or two below investment grade, and that most are “fallen angels” — issuers that were previously rated at investment grade but slipped into speculative territory after being unable to adequately cope with mounting economic and financial pressures. Very few issuers begin with a rating below investment grade, the report points out.

Another finding of the report is that junk-rated issuers generally suffer from a number of woes leading to a weak position, and that there are many paths to a below-investment grade rating. “The descent into speculative-grade ratings is usually an idiosyncratic tale of multiple factors,” said Medioli. “Most often, issuers that become non-investment grade face a confluence of challenges rather than one defining moment.”

For local governments, challenges tend to be a combination of economic, financial, and governance issues. The reported highlighted both Detroit and Woonsocket, R.I. as examples of cities dropping into junk bond status while grappling with “declining populations, increasing unemployment, persistent operating deficits and mounting financial obligations.” For the health care and housing sectors, the difficulties usually involve competitive pressures that lead to weak financial performance and “unsustainably high leverage.”

Regulatory uncertainty can also play a role in some sectors, such as public power, Moody’s noted.

“While most public power electric utilities have the statutory authority to establish their own rates and charges locally without external regulation, those subject to rate approvals operate with some uncertainty,” the report stated. “Even when the regulation is supportive, the rate making process can encounter delays that depress a utility’s financial profile.”

Moody’s concluded that it is unlikely that many speculative-grade credits will climb back into investment-grade territory in the coming year, but also predicted that the vast majority of the junk bond issuers will manage to avoid total collapse.

“Most speculative-grade municipal issuers will avert a debt default in the next year,” the report states. “Defaults will remain few in number, although still somewhat elevated compared to the minuscule historical rate of default. Only seven rated municipal issuers defaulted in 2013, and while more have defaulted in the last three years than in the prior three decades, they still remain few in number.”

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