UPDATE 1-Despite Detroit, U.S. public finance ratings improve -S&P
WASHINGTON, July 30 (Reuters) - Rating trends across the U.S. public finance sector were "decidedly positive" in the second quarter despite the default by Detroit, Standard & Poor's Ratings Service said on Tuesday, as it noted that its upgrades of municipal debt outpaced downgrades.
The credit ratings agency said in a report that it raised 194 ratings and only lowered 94 during the second quarter, the third straight quarter in which municipal debt upgrades outpaced downgrades.
"Since the economy has continued to expand, albeit at a slow pace by historical standards, credit quality has held up and, in fact, has strengthened as the year has progressed," the report said.
Detroit, which recently filed for the largest municipal bankruptcy in U.S. history, accounted for five of the seven defaults in the quarter. Fritch, Texas, and West Penn Allegheny Healthy System in Pennsylvania also defaulted on their debt. S&P said the defaults "were a higher number than normal."
Before Detroit filed for bankruptcy, it defaulted on a $39.7 million payment on taxable pension debt.
The positive trend during the quarter in S&P's ratings stands in sharp contrast to the high pace of downgrades that another major credit agency, Moody's Investors Service, followed. Last week, Moody's said it expects many more downgrades in the year, as well, as the economic recovery remains slow and many local and state governments continue to confront budget challenges.
For just state and local governments, the ratio of upgrades to downgrades was 2.15 to 1, S&P said. It was even higher for the utility sector, 2.67 to 1. Not-for-profit health saw upgrades outnumber downgrades by 1.5 to 1.
But one sector, housing , had more downgrades than upgrades. S&P said that during the quarter it issued 24 downgrades and 12 upgrades in housing, largely because it downgraded Berkshire Hathaway, which supported much of the debt with guaranteed investment contracts.
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