About one-third of U.S. local governments may have their credit rating raised by Standard & Poor’s under a new methodology that the company is proposing to boost transparency and comparability.
The change would affect about 3,800 issuers, S&P said in a report today. About 65 percent of ratings may remain unchanged under the plan, while 3 percent could drop, typically by one level, S&P said.
The new criteria would use the same framework the company applies to local and regional governments outside the U.S., S&P said.
“We’re striving to have ratings that are comparable globally and with other sector ratings,” Jeffrey Previdi, one of the primary analysts on the report, said at a media briefing in Manhattan. “So the credit risk present in a AA here is the same as a credit risk present in a AA elsewhere.”
In 2010, Moody’s Investors Service and Fitch Ratings adjusted their grading framework for the securities to make it more comparable with company debt.
The changes followed years of complaints from elected officials that rating companies were penalizing states and local governments by holding their debt to a higher standard than corporate bonds. Standard & Poor’s said that it already rated municipal bonds the way it graded other debt.
Moody’s moved to a “global scale,” affecting about 70,000 ratings, according to a company statement. Fitch moved 13,500 bond issues to the international scale.
S&P proposed to assign ratings based on seven areas: economy, management, liquidity, budgetary performance, budgetary flexibility, debt and institutional framework. The economy score would receive a 30 percent weighting, compared with 20 percent for management. The other items each account for 10 percent.
The change would affect ratings on municipal governments that aren’t special-purpose districts, according to the report. Cities, counties, towns, villages, townships and boroughs would be included, while school districts would be among those excluded.
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