NEW YORK - U.S. public finance rating revisions for the first quarter of 2012 saw the highest amount of downgraded debt since 2009 as the trend of downgrades exceeding upgrades continued for the 13th quarter, says Moody's Investors Service in a report.

"Despite positive economic indicators including declining unemployment levels, some improvement in consumer confidence and an uptick in housing sales, credit quality in much of the US public finance sector continues to feel the lagged impacts of the Great Recession," said Moody's AVP Analyst Dan Steed, author of the report. "As a result, we expect downgrade activity will outpace upgrades in most public finance sectors over the remainder of 2012."

The first quarter's downgraded debt totaled $80.9 billion, some 58% of which was related to downgrades of Illinois and Connecticut. Other sizable downgrades included Detroit and the Puerto Rico Electric Power Authority. It was the second highest level of debt downgraded in one quarter in 10 years, and was 14 times higher than the par amount of debt upgraded in the quarter.

The downgrade-to-upgrade ratio across US public finance sectors in the first quarter of 2012 was 2.5 to 1. This is well below the peak of 5.3 to 1 observed in the third quarter of 2011 and lower than the full year 2011 ratio of 4.1 to 1.

The report, "U.S. Public Finance Rating Revisions for Q1 2012: Highest Quarterly Total of Downgraded Debt - $80.9 Billion - Since 2009," includes separate sections dedicated to each of the public finance sectors covered by Moody's: state governments, local governments, not-for-profit healthcare, higher education and non-profits, infrastructure, and housing.

The 45 upgrades in the first quarter was up modestly from quarterly levels in 2011.

"Upgrades occurred in all sectors, and were predominantly supported by better financial results due to management teams' cost-cutting efforts, efficiency strategies and other proactive budgeting actions," said Steed. "Also helpful were recent improvements in economically sensitive revenues and a favorable debt market environment."

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