Moody’s downgraded nearly 300 U.S. municipal issuers in the second quarter, the most for any quarter in more than a decade and the latest sign of the potential pressure building in the market where states and local governments raise money.
Local areas across the U.S. have been struggling for several years after the recession sharply undercut revenues, with three cities in California recently filing for bankruptcy in an attempt to alleviate their financial burdens.
Tax receipts have rebounded but not enough to compensate for rising costs, which include healthcare spending, social welfare and labor.
About half of the downgrades in the quarter affected the debt of cities and school districts, such as that of Clark County in Nevada, one of the largest in the U.S., Moody’s said. The school district serves five cities including Las Vegas.
In the quarter, Moody’s also downgraded $6.9bn of rated debt associated with Detroit, Michigan’s biggest city, and cut the ratings for Stockton, California ahead of the city’s bankruptcy filing. The city filed for bankruptcy on June 28. FT
The number of downgrades in the quarter totaled 290 affecting $61.3 billion of debt and the ratio of downgrades to upgrades was 4.4 to 1. On a par amount basis, downgrades exceeded upgrades by 7.2 times, down from 14.2 times in the first quarter, Moody’s said in a report. Reuters
For the first half of 2012, there were 117 upgrades affecting $14.2 billion of debt and 502 downgrades affecting $142 billion of debt, according to the report. That compares with 125 upgrades affecting $13.2 billion of debt and 518 downgrades, affecting $193.5 billion of debt during the same period in 2011. WSJ
Pressure has been particularly acute for redevelopment district authorities (RDA) in California. The rating agency downgraded $11.6bn of tax allocation bonds issued by 90 of the agencies, which were designed to spur growth in troubled areas. NASDAQ