Standard & Poor’s lowered more public finance ratings than it raised in the fourth quarter of 2011.
In a report released Monday, the rating agency said the quarter’s downgrade-to-upgrade ratio was 1.51 to 1.
Looking at sectors within public finance in the quarter, it said state and local governments had a downgrade-to-upgrade ratio of 1.39.
Despite downgrades to the state and local government sector, 93% of all ratings are A-minus or higher.
No state ratings were changed in the quarter. Standard & Poor’s did change the outlook for Arizona’s AA-minus to stable from negative.
Despite utilities generally doing well in the quarter, S&P gave multi-notch downgrades to a few.
In California, the agency downgraded the Foresthill Public Utility District to B from A-minus, the Oxnard Financing Authority’s revenue bonds to BBB from A-plus, and the city of Lomita’s revenue bonds to A-minus from AA-minus.
Among the public finance bodies Standard & Poor’s rated in the fourth quarter, there were three defaults: Jones County, Texas, the Texas Midwest Public Facilities Corp. and the Greater Wenatchee, Wash., Regional Events Center Public Facilities District.
While Standard & Poor’s downgraded more than it upgraded in public finance in the third and fourth quarters, excluding housing, the reverse was true for all of 2011. For the year, the upgrade-to-downgrade ratio, excluding housing, was 1.32 to 1.
Housing “includes many ratings that reflect credit substitution from third-party banks or government-sponsored entities,” analysts noted. “In the housing sector, downgrades heavily outnumbered upgrades for the year, at a rate of 26.05 to 1 — mostly because of the 1,835 downgrades of government-supported issues following the lowering of the U.S. sovereign credit rating.”
Standard & Poor’s on Aug. 5 cut the United States to AA-plus from AAA.
Despite downgrades in the state and local government sector in the year’s second half, the agency said the sector was up overall for the year, with an upgrade-to-downgrade ratio of 1.28 to 1.
Standard & Poor’s was less negative in the fourth quarter than Moody’s Investors Services and Fitch Ratings. While S&P had a downgrade-to-upgrade ratio of 1.51 to 1 for the quarter, Moody’s comparable ratio was 4.8 to 1 and Fitch’s was 2.4 to 1.
Standard & Poor’s was also much more positive about public finance developments for the entirety of 2011 than were either Moody’s or Fitch.
Whereas S&P’s upgrade-to-downgrade ratio for the year was 1.32 to 1, Moody’s downgrade-to-upgrade ratio was 4.1 to 1 and Fitch’s downgrade-to-upgrade ratio was 2.1 to 1.
The credit rating agencies have also released outlooks for the current year.
Standard & Poor’s said that states face continued austerity even though their credit should remain stable. It also expects a similar story for the entire public finance sector in 2012.
In mid-December, Fitch released a report saying it had a stable outlook for states in 2012. On Thursday, Laura Porter, managing director for state ratings, said Fitch was maintaining the stable outlook for 2012.
Fitch has no single outlook for local governments. It says that sector faces two major challenges in 2012: an expected inflation-adjusted 13% decline in property values, and the challenge of cutting labor costs after most other easier-to-cut non-labor expenses have been eliminated.
Moody’s has a negative outlook for both states and localities in 2012. However, in a report released Monday, it said that “absent a dramatic intensification of the [European] debt crisis,” municipalities should be able to manage the effects of this crisis.