Standard & Poor's Ratings Services said it does not view current efforts to define certain bonds as secured by "statutory liens" as a game changer for local government credit ratings.
The vast majority of its ratings would remain relatively unchanged if these efforts were successful, it said in a report published Tuesday.
In the aftermath of recent defaults and bankruptcies, Standard & Poor's has seen several strategies to provide more comfort and security to investors. Legislative action to define a pledge as having a "statutory lien" is one of these. The aim of a statutory lien is to protect the payment to bondholders from impairment within the bankruptcy code.
"In our view, one major shortcoming of these proposals is that while they attempt to address recovery prospects for bonds in bankruptcy, they do not address our concerns over the timeliness of payments. We believe bankruptcy can call timeliness of payment into question regardless of protected revenue status. Our ratings incorporate not just the ability to pay, but also the ability to pay on time," said credit analyst Lisa Schroeer. "Consequently, we view the proposals as unlikely to change the vast majority our ratings even if they are successfully enacted."
The report goes on to highlight a nuance of the analysis, saying that "we do believe there is the possibility for these efforts, if implemented, to have an impact at lower rating levels if and when municipalities become more distressed."
