Standard & Poor’s downgraded more local and state governments than it upgraded in the third quarter of 2012, but did the opposite with public utilities.
After doing more raising than lowering of ratings of U.S. public finance in the first two quarters, S&P found that “a subpar economic recovery – too slow to naturally boost fiscal conditions for most obligors – took its toll across U.S. public finance ratings during the third quarter of 2012.”
Across the entire sector it downgraded 148 obligors and upgraded 136 obligors.
“Sectors less dependent on federal or state transfers are faring relatively better,” senior director Gabriel Petek wrote.
Some sectors are experiencing a growing disparity between strong and weak credits, Petek wrote. S&P has given a non-investment grade rating (below BBB-minus) to 1.16% of the sector, slightly above the long-term average of 1%.
However, Standard & Poor’s has given a rating of A-minus or better to 91% of the overall U.S. public sector.
In the past quarter S&P downgraded 123 local and state government obligors and upgraded 92 of them.
In the quarter S&P lowered Illinois’ general obligation rating to A from A-plus and maintained a negative outlook. The agency also lowered its outlook on New Jersey’s and Pennsylvania’s debt rating to negative.
On Aug. 7 Standard & Poor’s lowered the Chicago Board of Education’s GOs to A-plus from AA-minus, writing: “The downgrade reflects the board’s budgeting of most of its unrestricted operating reserves in its proposed 2013 budget and the challenges it faces to return to balanced operations and maintain adequate reserves amid the state’s fiscal woes, rising pension payments, and higher costs associated with a longer class day.”
During the past quarter S&P raised 23 ratings in the public utility sector and lowered eight of them. It raised ratings on West Palm Beach, Fla., utility revenue debt to AA from AA-minus, and Galveston, Texas’ water and sewer system to A-plus from A. On the other hand, S&P lowered Atwater, Calif.’s wastewater bonds to BBB-minus from A and placed them on CreditWatch.
The rating agency downgraded Minnesota Governmental Agency Finance Group’s debt to BBB from AA-minus.
In the transportation sector, S&P raised the Port of Oakland’s senior-lien rating to A-plus from A and its subordinate-lien rating to A from A-minus.
In the education sector, among the actions Standard & Poor’s took was to lower the rating of Florida’s Capital Project Finance Authority to D from C, following its reliance on National Public Finance Guarantee Corp. to make payments. The payments were on a $151 million bond for student housing.
S&P gave the U.S. nonprofit health care sector 14 upgrades and 10 downgrades. “We believe that the industry is at the top of the credit cycle and that the spread between the number of upgrades and downgrades will narrow over time,” managing director Martin Arrick wrote.
The rating agency downgraded $579 million from Mission Health Inc. in North Carolina to AA-minus from AA. It also dropped $528 million from Sanford Health in South Dakota to A-plus from AA-minus.
Finally, Standard & Poor’s actions in the public housing sector were overwhelmingly negative in the quarter. It had four upgrades versus 44 downgrades.
“The majority of downgrades (28) were the result of our downgrades on various counterparty providers, which provide support in the form of guaranteed investment contracts to housing authorities,” S&P analyst Stephanie Morgan and senior director Valerie White wrote.