November 14, 2012 / 10:36 PM / 5 years ago

U.S. aid, insurance seen as key for muni credits hit by storm

Nov 14 (Reuters) - Credit rating agencies are looking to see how U.S. East Coast municipal bond issuers fare in the aftermath of the storm Sandy with the help of federal disaster assistance and insurance coverage.

The ability of those issuers to tap their own funds or obtain loans in the interim to bridge a lag in the payments is also a credit factor.

“We all know that since the cost of storm clean up occurs ahead of insurance payments, FEMA (Federal Emergency Management Agency) reimbursements and state assistance, liquidity and availability of reserves are important factors,” said Standard & Poor’s Ratings Services Analyst Karl Jacob in a conference call on Wednesday.

The big storm that slammed into the New York City area two weeks ago flooded communities, shut down some transit facilities and caused wide-spread power outages.

In a report late on Tuesday, Moody’s Investors Service said it expects possible credit deterioration for only a few “heavily impacted issuers with weak liquidity.” But it added that its analysis was predicated on the assumption that FEMA will be reimbursing issuers for storm-related costs they incurred.

“Should FEMA reimbursements fail to materialize, we expect possibly broader credit impact across the sector,” Moody’s said in a statement.

Meanwhile, Fitch Ratings on Wednesday said the storm’s short-term impact should be mitigated by issuers’ financial flexibility, along with FEMA and insurance money. “We expect damaged property in most communities to be rebuilt, maintaining tax bases, rather than see residents and businesses leave the area,” Fitch said in a statement.

S&P analysts said transit systems and public power were particularly hit by the storm. And while Fitch revised the outlook on the Long Island Power Authority’s $5.9 billion of A-rated debt to negative from stable on Monday, S&P said it has not changed LIPA’s A-minus rating or stable outlook.

“It’s a little too early to gauge how great the political storm may be and if it would impact credit,” said S&P Analyst Geoffrey Buswick.

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