Municipal Downgrades Soar

The pace of downgrades on municipal ratings rocketed in the second quarter as governments deal with increased budget constraints, according to Fitch Ratings.

Its public-finance group issued 52 downgrades on $103.4 billion of debt while upgrading 24 with $6.1 billion of debt. Those ratios of 2.2-1 and 17-1, respectively, compare with the first quarter’s 1.4-1 and 6.5-1.

The bulk of the downgrades dealt with California, where state legislative leaders have agreed on sharp budget cuts to close a $26 billion deficit. On June 25, Fitch downgraded $79 billion of state-related bonds. They were cut again 11 days later.

Fitch added Thursday that the entities with a negative ratings outlooks rose 28% during the quarter to 227, reaching the highest point since Fitch began tracking the figure in 2002. Meanwhile, those with a positive outlook fell by seven to 84. The negative-to-positive ratio rose for the sixth straight quarter.

Another 43 governments were on watch for downgrade as of June 30, compared with four for upgrade. That’s down one each from March 31.

Despite the concerns about government fiscal health, most notably in California, Fitch noted 89% of the ratings outlooks outstanding are stable.

http://online.wsj.com/article/SB124837749992276691.html

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