Moody’s Investors Service has downgraded a record amount of U.S. public finance debt in 2012 and it expects that trend to continue in the year ahead.
The rating agency said Friday that it downgraded US$311 billion in public finance debt in 2012, and upgraded just US$24 billion worth during the year. Moody’s downgraded the ratings on 5.9% of the approximately 14,000 public finance debt issuers it rates during the year, and upgraded the ratings on 1.3% of them.
The downgrades surpassed the previous record of approximately US$256 billion in downgraded public debt, which was reached in 2009. In 2011, Moody’s downgraded US$194 billion in public finance debt and upgraded US$13 billion.
The firm says that the downgrade activity in 2012, “is a reflection of the persistently difficult economic and industrial conditions. The trend toward downgrades also reflects the stressed budgetary and reserve positions of the bond issuers, their challenging debt structures, and elevated pressures from funding of pension obligations.”
Looking ahead, it says that a major risk for public finance issuers in 2013 is the federal government’s budget deficit deliberations.
“For 2013, we expect downgrades to continue outpacing upgrades in most public finance sub-sectors, albeit at a reduced pace as the economic recovery continues and the housing sector begins to strengthen,” says Eileen Hawes, Moody’s assistant vice president.