California’s credit rating cut by Moody’s and Fitch
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California’s credit rating took another hit today, ahead of the state’s mammoth bond offering scheduled for next week.
But the rating cuts by Moody’s Investors Service and Fitch Ratings just matched the move by rival Standard & Poor’s last month, when S&P dropped the state to the lowest credit grade of all 50 states.
Moody’s today reduced its rating to A2 from A1; Fitch trimmed its rating to A from A-plus.
S&P last month cut the state to A from A-plus.
California’s budget woes are legendary, of course, so the rating firms aren’t telling most investors anything they didn’t already know.
In a statement, Fitch said that ‘Despite recent major [budget] balancing actions, the downgrade reflects the ongoing weakness of the state’s economic and revenue performance and Fitch’s expectation that the state will experience continued budgetary and cash-flow stress going forward.’
Still, in a relatively positive sign, Fitch said its ratings outlook for the state now was ‘stable,’ indicating that it didn’t expect to come back with another downgrade soon.
State Treasurer Bill Lockyer plans to issue $4 billion in tax-free general obligation bonds next week to fund infrastructure projects. It will be the state’s first long-term bond sale since June, and Lockyer is counting on heavy demand from individual investors.
Lockyer has been in a long-running battle with the rating firms. He asserts that their grading methods don’t give the state’s bonds proper credit for the constitutional guarantees of interest and principal payments.
Tom Dresslar, a spokesman for Lockyer, said the state wasn’t put off by the Moody’s and Fitch moves because the rating firms ‘have no credibility.’
It’s unlikely the AAA-rated states, including North Carolina, Virginia and Utah, feel exactly the same.
-- Tom Petruno