Sept 30 Funding for hospitals, states and other
issuers in the $3.7 trillion U.S. municipal bond market would be
jeopardized if Congress does not raise the federal debt limit by
the Oct. 17 deadline, Moody's Investors Service said on Monday.
Without a deal on the debt ceiling, the U.S. Treasury will
have only $30 billion every day to pay bills that sometimes
total twice that amount for daily expenditures, Moody's said.
"Issuers would also likely face higher borrowing costs, and
market access would be challenging, particularly for issuers
with thin liquidity and a need to refinance debt or access the
short-term note market for cash-flow purposes," Moody's said.
Most issuers have already prepared for an impasse, setting
aside funds or scheduling payments to protect against possible
delays or reductions in the transfer of federal funds, the
credit rating agency said.
Hospitals, especially those that treat many poor patients,
would take a big hit because they rely so heavily on Medicaid
and Medicare funds.
Children's Hospital Central California, rated A1 with a
stable outlook, gets 70.7 percent of its revenue from Medicaid
reimbursements - the highest percentage of any hospital. All 10
hospitals that rely the most on Medicaid are children's
hospitals, the Moody's report said.
A potential federal government shutdown, which would happen
on Monday at midnight if Democrats and Republicans fail to agree
on a spending bill, could also hit some muni bonds, although the
impact would likely be limited.
Only specific bonds will be directly affected by any cut in
federal funding stemming from either a prolonged government
shutdown or a lack of a debt ceiling extension, according to
Moody's rates several billions of dollars of municipal bonds
that are backed by federally appropriated funds such as transit
GARVEES - grant anticipation revenue bonds - which might be
affected. Moody's said some of the debt payments on these bonds
will continue because they will be at least partially covered by
existing and future reserves.
If the debt ceiling is not extended "it could mean a variety
of things we think it would be quite broad reaching, although
reserves from state and local government taxes will mitigate
that," said Nick Samuels, senior credit officer at Moody's.
Among other municipal debt that would be affected, Moody's
rates about $10 billion of military housing bonds. While the
Oct. 1 debt service payments on the bonds may already have been
made, future payments could be made from debt service reserves.
Moody's also rates about $2.3 billion of transit GARVEES,
whose first debt payment will be on Dec. 1, and around $1
billion of public housing authority bonds.