January 31, 2011 / 4:48 PM / 9 years ago

US muni rating cuts to outpace upgrades -Fitch

MIAMI, Jan 31 (Reuters) - Ratings on bonds sold by hard-pressed U.S. states and local governments will continue to be downgraded more frequently than upgraded, as was the case during 2009 and 2010, Fitch Ratings said on Monday.

The fresh prediction by Fitch, a leading Wall Street credit ratings group, of continued fallout from the fiscal stresses hitting cities, counties and other local governments follows a similar forecast by Standard & Poor’s Ratings Services a week ago that state and local governments would see a rise in downgrades during 2011.

Bond ratings by agencies such as Fitch play a key role in America’s $2.8 trillion municipal debt market, which has been stung by worries about the fiscal stability of many issuers such as California and Illinois. A ratings downgrade hurts the market value of outstanding bonds and makes new bonds more expensive for borrowers to sell.

Fitch said in a report it had downgraded 46 issuers during October, November and December and upgraded 20. In the third quarter, ratings for 32 borrowers tracked by Fitch were reduced and 25 were raised.

Last year’s fourth quarter was the eighth consecutive quarter when downgrades outnumbered upgrades, Fitch said.

“This trend in public finance ratings is expected to continue as negative rating outlooks exceeded positive rating outlooks (4.2 to 1) and negative rating watches still outweighed positive rating watches (5.3 to 1) in the fourth quarter of 2010,” analysts Sarah Repucci and Eric Friedland said in the report.

The analysts also said 74 percent of Fitch’s rating actions during the fourth quarter had been affirmations, in which neither a rating nor an outlook status was changed.

“Furthermore, 91 percent of ratings had a stable rating outlook at the end of the fourth quarter,” the analysts said. (Reporting by Michael Connor; Editing by Leslie Adler)

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