RPT-Moody’s moves U.S. states to new ‘global’ rating scale

(Repeats to widen distribution to more subscribers)

WASHINGTON, April 19 (BestGrowthStock) – Moody’s Investors
Services revamped its U.S. state debt ratings on Monday, after
state governments pressured it for over two years to make
their ratings comparable with other credit sectors.

As a result of Moody’s move, some state ratings were
lifted by as many as three notches.

California, which had led the charge to create a universal
scale, was bumped to A1 from Baa1.

The rating agency previously noted the move to a global
scale for munis does not reflect any improvement in credit
quality, but represents adjustments to denote a comparable
level of credit risk to other types of bonds, such as
corporate debt.

Illinois moved to an Aa3, which is the second-highest
rating category for investment-grade corporate debt, on
Moody’s (MCO.N: ) new state scale from A2, or the third-highest
rating class, on the old.

Puerto Rico was changed to A3 from Baa3, which is the
lowest rung of investment grade on Moody’s rating scale.

New York was given an Aa2, compared with its previous Aa3
rating.

SWEET ‘TRIPLE-A’

Five states — Indiana, Iowa, New Mexico, Tennessee, Texas
— moved up to the highest rating of Aaa — or “triple-A.” The
U.S. government also has a triple-A rating.

Not all states saw their ratings change. Those that had
already attained Aaa ratings remained the same.

Florida, Washington, Kansas and Minnesota also have the
same ratings on the new scale, although their outlooks were
generally changed to stable from negative.

The new Moody’s scale, released on Monday, is only for
states’ general obligation, or GO, debt. The ratings agency
has said it will move about 70,000 municipal ratings
altogether to the new global scale.

In the wake of the 2008 credit crunch, members of Congress
and high-profile municipal debt issuers called for a unified
ratings approach from all Wall Street ratings agencies. They
argued that municipal debt was rated lower than similar
corporate debt, which has a higher likelihood of default, and
cities and states were subsequently forced to pay more in
interest.

Two weeks ago, Fitch Ratings recalibrated its U.S. state
ratings.

Standard & Poor’s Ratings Services has said it uses the
same scale across all sectors.

“We’ve consistently said that the rating system should be
recalibrated to reflect the strong history of timely repayment
both by New York state and across the municipal sector,” said
Matt Anderson, spokesman for the New York State Division of
budget. “Any movement toward that goal is a positive step.”

LONG-TERM EFFECTS UNCERTAIN

Yields could fall on much of the debt with the new scales,
according to George Friedlander, senior fixed income
strategist at Morgan Stanley Smith Barney, in his latest muni
market commentary. But Friedlander warned that “rating
deterioration within the now-broader rating bands may become
more difficult to spot.”

He also said pricing services will struggle with the
discontinuity.

Speaking at a conference in Washington D.C. last week,
Patrick Brett, director of municipal strategy and global
distribution at Citigroup, said international investors will
better understand the new ratings and be more willing to buy
states’ debt.

Joseph Darcy, executive vice president of Hartford
Investment Management Company, told the same conference,
though, the changes will have a “marginal effect on spreads.”

“We have to keep in mind that the migration to the global
rating scale, which is artificially elevating ratings and
appearance, is occurring against the backdrop of a period of
intense fiscal stress that state and local governments are
trying to navigate,” he said.
(Reporting by Lisa Lambert; Additional reporting by Joan
Gralla in New York and Karen Pierog in Chicago; Editing by Jan
Paschal)

RPT-Moody’s moves U.S. states to new ‘global’ rating scale