WASHINGTON Feb 1 Moody's Investors Service
downgraded a record $311 billion of U.S. public finance debt in
2012 due to economic and budget stresses, the rating agency said
on Friday, adding that it expects the pace of downgrades to slow
"The negative rating trend throughout the year reflects
ongoing lackluster economic and industry conditions, stressed
budgetary and reserve positions, challenging debt structures,
and elevated pension funding pressures," it said in a special
report. "For 2013, we expect an overall reduced pace of
downgrades as economic recovery continues, and the housing
sector begins to strengthen."
It also expects in 2013 downgrades will exceed upgrades for
public universities and not-for-profit hospitals. The federal
government is targeting Medicare spending in its negotiations to
cut its deficit, and the health insurance program for the
elderly is the hospitals' largest single source of revenue,
The agency only upgraded the ratings on $24 billion of bonds
The number of downgrades rose 60 percent from 2011, as did
the number of rating changes. The 7.2 percent of the 14,000
issuers Moody's rates either upgraded or downgraded in 2012, was
double the 3.6 percent in 2011.
In 2012 downgrades "vastly outpaced" upgrades for states
mostly because of "out-sized unfunded pension obligations and
associated pressure on operating budgets." Moody's expects
improving revenues and strengthening reserves will lead to fewer
downgrades this year.
For local government issuers, there were 5.4 downgrades for
every upgrade, Moody's said, as growth in revenues remained
"sluggish." It is currently looking into the pension obligation
bonds and lease debt of California cities and counties, which
could result in rating changes in 2013, it added.