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 this year.
"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, Moody's said.
The agency only upgraded the ratings on $24 billion of bonds in 2012.
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.