CHICAGO -Moody's Investors Service is keeping its eye on the issuers it rates that were hardest hit by widespread flooding in the Midwest last month to gauge the long-term fiscal strains that might result from a drop in property levies and taxable levies, but no immediate credit action is expected as recovery continues, according to a new report.

The report, titled Midwest Flood Update, provides an update on Moody's efforts to assess the damage - that ranged from minimal to severe - and implications on the credits it rates in Iowa, Illinois, Indiana, Missouri, and Wisconsin that experienced flooding from rising lake and river waters and breached levies.

Moody's has contacted the 125 issuers it rates that were impacted by the flood, with its questions initially focused on the level of physical damage, degree of economic disruption, status of financial condition, insurance coverage, and potential aid.

None of the rated issuers reported any delays in their debt service payments and most reported just limited governmental disruption. In the near term, the cost of recovery efforts and the need for some to dip into reserves may strain some budgets, but "most of the affected municipal credits have a certain amount of financial flexibility to absorb such outlays," read the report authored this week by 10 analysts that cover regional and state credits, infrastructure and health care. Most that suffered significant damage expect to be reimbursed for between 75% and 90% of their costs by the Federal Emergency Management Agency.

The long-term picture is more clouded as Moody's warned that "much of the impact on credit quality has yet to be seen." Over the next three months, analysts will continue their review of issuers' contingency plans and strategies. While issuer credits will be assessed over that time, analysts said they expect to withhold any rating actions until more detailed damage figures are known and issuers adopt plans to cope.

"Moody's will continue to carefully monitor the credit profile of issuers affected by the floods with particular emphasis on taxable valuation, property tax levies, state aid, and timely debt service repayments. Any rating updates will be reflected in credit reports related to individual issuers," the report read.

The report provided a state-by-state assessment of the damage with Iowa being the hardest hit. The heaviest damage was concentrated among issuers along the Cedar River. The rating agency rates Cedar Rapids, which suffered about $405 million in damage, and Iowa City both Aaa, the school district is rated Aa3, and Coralville is rated Aa3 with a negative outlook. The University of Iowa is rated Aa2.

Coralville already has a negative outlook and flooding costs place further pressure on the credit, analysts wrote. The University of Iowa, located in Iowa City, released its preliminary estimated damages at $232 million.

Moody's rates 181 tax-exempt issuers in the state with $7.9 billion of outstanding debt. Statewide, nearly 350 cities were impacted. Gov. Chet Culver warned recently that the state will have $1.2 billion in unmet disaster needs after FEMA's reimbursements.

He recently established a Rebuild Iowa Office. He also named a Rebuild Iowa Advisory Commission to look at recovery assistance in areas that include housing, infrastructure and transportation, public health, education, flood plain management and hazard mitigation, agriculture, and environmental quality.

A report is expected next month and then it's expected that Culver will call a special session to announce aid plans. At Aa1 and with $600 million in reserves, the state "remains well-positioned to meet fiscal demands over the near term as it prepares to aid distressed localities," Moody's wrote.

The Iowa Finance Authority is also looking at ways to aid housing projects. Some estimates have put agricultural damage alone at $4 billion with another $4 billion suffered by businesses.

Most credits rated by Moody's in Missouri experienced only moderate flooding and none reported any material damage to either government facilities or the local property tax bases as levies and flood walls have held and river levels are receding. Officials report that flooding damaged 1,700 homes and businesses and affected 300,000 agricultural acres. The flooding is not expected to negatively impact the state which ended fiscal 2008 with a balance of $831 million and $557 million in its reserve.

Illinois suffered limited damage in some towns along the Mississippi River and no credits rated by Moody's reported that they will suffer budgetary stress as a result. Several towns that suffered levy breaks are not rated by Moody's. Southwestern Wisconsin was the hardest area hit in the state along with the Wisconsin Dells tourist area just north of Madison where Lake Delton breached its banks and emptied into the Wisconsin River. The short-term impact is considered manageable.

In Indiana, the most severe damage was in the southeastern area in and around Terre Haute where the city's Sanitation District experienced damage. State Treasurer Richard Mourdock has announced the Treasurer's Conservation Assistance Program, which will provide a total of $50 million in low-interest loans in partnership with local banks to Indiana farmers negatively impacted by the flooding.

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