TEXT-Fitch: Sandy's muni credit implications uncertain, unlikely severe

Nov 2 - Fitch Ratings is closely monitoring the impact of damage related to
Hurricane Sandy along the East Coast and its effects on ratings of general
governments, utilities, educational and healthcare facilities, and
transportation systems. Coastal areas in New York and New Jersey were affected
most heavily by the storm, although some locations more inland and in other East
Coast states were also hit. Over the coming weeks and months, as more
information on the level of damage and prospects for reimbursement and
rebuilding become available, Fitch will continue to monitor ratings in affected
areas and make adjustments if and when appropriate.

Transportation
In the wake of Hurricane Sandy there have been unprecedented levels of damage to
power, subways, commuter rail and telecommunications. Airports and roads also
experienced water damage and service disruptions but are returning to normal
more quickly. Over the last two days Fitch has been in contact with impacted
airports, roads and ports and on Tuesday, Nov. 6 will issue a detailed report
covering operational status, liquidity and other important credit issues related
to impacted facilities.

General Government
Fitch has observed that in the immediate aftermath of a number of past
disasters, a consequent reduction in credit strength of general government debt
seemed inevitable. However, any economic and financial impact of those events
has proven manageable in the short term and not detrimental to long-term credit
quality. Ratings have rarely been adjusted based solely on the impact of
disaster-related damage. Property is often rebuilt or replaced, largely with
funds that are reimbursed by other levels of government and private insurance.
The replacement property may be of higher value than the original. However,
every event and every community is different, and Fitch is identifying those
issuers that appear most at risk.

In the near term, Fitch will be most concerned about the magnitude of damage in
a particular locality and the extent to which management was prepared for a
major storm event. Fitch takes this level of preparedness into account in its
ratings but if damage is more acute than envisioned, Fitch will assess the risk
that sufficient funds may not be available for non-discretionary costs including
debt service. If Fitch perceives heightened risk, a given rating will be
re-evaluated. A number of the smaller communities hit especially hard in this
storm do not carry their own ratings but are part of a larger government such as
a county that has greater resources and a much larger economic base over which
to spread any required costs.

The vast majority of tax-supported debt in the affected region is backed by
property taxes, mainly through the issuer's general obligation, with a handful
of bonds supported by broad-based sales and/or income taxes. Fitch believes the
risks of these two types of security are similar.
In the longer term, Fitch will become concerned if damage appears to be of a
magnitude that fundamentally changes an issuer's economic prospects. The highest
level of concern is likely to be in areas in which rebuilding is prolonged,
incomplete, or costly to the locality, or in which population out-migration
appears long-lasting. This could reduce the community's tax base or impair its
growth potential.

Utilities, Healthcare, and Education
Fitch believes downgrades of revenue bonds due to Hurricane Sandy-related damage
are unlikely largely for the reasons stated above. However, particular risks to
entities whose ongoing operations are critical to pledged revenue generation may
make their bonds more susceptible to downgrade. Similar to issuers discussed
above, Fitch's analysis will include the magnitude of damage and the entity's
preparedness for such an event. Those with severe damage and weaker cash flows
prior to the storm will be of greatest concern.

Municipal utility issuers in the affected area are likely to experience
operational disruption but generally maintain sufficient resources and liquidity
to buffer the financial and rating impact until more permanent funding
arrangements are secured. Additionally, the authority and capacity to increase
rates as necessary to maintain adequate cash flow is viewed as a fundamental
credit strength for these issuers. Fitch believes that one exception may be the
Long Island Power Authority (LIPA), which is faced with system repairs and
related costs that are unprecedented. Political criticism and pressure are
ever-present for LIPA and therefore discounted by Fitch. However, any failure to
fully recover storm-related costs, or meaningful delays in the recovery, as a
result of politically motivated actions could result in higher financial risk
and downward rating pressure for the utility.

For the hospitals in the affected areas, Fitch believes there could be near-term
financial pressure due to increased expenses related to damage and preparedness
in addition to loss revenue from closed facilities or inability of patients or
physicians to access to facility. The extent and length of the impact will need
to be assessed on a credit by credit basis. For continuing care retirement
communities, Fitch will monitor the potential long-term impact from the storm on
future sales in an already weak housing environment.

For higher education institutions that have experienced some facility damage,
Fitch believes most have the ability to manage the increased costs associated
with repairs. If there are institutions that remain closed for an extended
period of time due to more extensive damage, Fitch will monitor on a case by
case basis to determine whether there will be longer-term negative
repercussions, including potential impact on future student demand.
Additional information is available at 'www.fitchratings.com'.