Aug 9 Credit rating downgrades of U.S. municipal bond issuers hit a 10-year high in the second quarter, Moody's Investors Service reported on Thursday.
Stressed budgets and weaker liquidity, particularly in cities and school districts, led to rating cuts, the Wall Street agency said.
"About half of the downgrades in the quarter affected the debt of cities and school districts with many of these in California and Michigan," said Moody's analyst Dan Steed, in a statement.
In the second quarter, Moody's dropped the ratings for Detroit, Michigan's biggest city, affecting $6.9 billion of debt, while ratings for Stockton, California, were cut on expectations of the city's municipal bankruptcy filing. Stockton formally filed on June 28.
Moody's also downgraded a slew of ratings on $11.6 billion of tax allocation bonds issued by California Redevelopment District Authorities.
The number of downgrades in the quarter totaled 290 affecting $61.3 billion of debt and the ratio of downgrades to upgrades was 4.4 to 1. On a par amount basis, downgrades exceeded upgrades by 7.2 times, down from 14.2 times in the first quarter, Moody's said in a report.
For the first half of 2012, there were 117 upgrades affecting $14.2 billion of debt and 502 downgrades affecting $142 billion of debt, according to the report. That compares with 125 upgrades affecting $13.2 billion of debt and 518 downgrades, affecting $193.5 billion of debt during the same period in 2011.