WASHINGTON (Reuters) - Standard & Poor's Ratings Service upgraded the ratings of U.S. municipal bonds at a higher rate than downgrades in the final quarter of 2012, which helped push the full year into positive territory.
The ratio of upgrades to downgrades was 1.61-to-1, the agency said in a special report on Wednesday, adding there were no defaults on the municipal bonds it rates in the final quarter of 2012.
"With another year in the books, U.S. public finance again proved to be a relatively stable sector," it said, noting at the end of December, more than 40 percent of its public finance ratings were "AA-" or higher.
"Widely publicized concerns about credit quality throughout the sector notwithstanding, the actual degree of credit quality erosion in public finance during the past two years was minimal," it added.
The 2007-09 recession caused state and local revenues to collapse, and organizations such as public universities and hospitals to struggle financially. Even during the economic recovery many issuers have faced fiscal and revenue problems, which led analyst Meredith Whitney to warn of a rash of defaults and bankruptcy filings. Her predictions have not been realized, but they cast a long chill on the $3.7 trillion municipal bond market.
For all of 2012, there were 1.27 upgrades to every downgrade, mostly due to the third quarter when downgrades outpaced upgrades.
S&P said that rating actions for state and local debt were split near-evenly, while the "utilities sector continues to benefit from its higher revenue-raising flexibility." The ratio of upgrades to downgrades for utilities was 3.45-to-1, it said.
Altogether, nine issuers defaulted over the course of the year - three state and local governments, three higher education institutions, two healthcare providers and one utility.
In contrast, another ratings giant, Moody's Investors Service, said last week it had downgraded a record amount of municipal debt in 2012 and that over the year downgrades "vastly outpaced" upgrades for states. For local government issuers, there were 5.4 Moody's downgrades for every upgrade.
(Reporting by Lisa Lambert, editing by Nick Zieminski andChizu Nomiyama)