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Announcement:

MOODY'S PLACES RATINGS OF FIVE OF 15 Aaa STATES ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO U.S. SOVEREIGN RISK VULNERABILITY

Global Credit Research - 19 Jul 2011

APPROXIMATELY $24 BILLION OF RATED DEBT AFFECTED; HIGH FEDERAL EMPLOYMENT AND MEDICAID EXPOSURE CITED

New York, July 19, 2011 -- Moody's Investors Service has placed on review for possible downgrade the Aaa ratings of the states of Maryland, New Mexico, South Carolina, Tennessee, and the Commonwealth of Virginia. In connection with Moody's July 13 action placing the Aaa government bond rating of the United States on review for downgrade, Moody's announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.

Should the U.S. government's rating be downgraded to Aa1 or lower, these five states' ratings would likely be downgraded as well. Moody's will review the ratings of the five states on a case-by-case basis and announce any rating actions within seven to ten days following a sovereign action.

The ratings and outlooks of the 10 remaining states that have Aaa ratings have not changed and have not been placed on review for possible downgrade. These states are Alaska, Delaware, Georgia, Indiana, Iowa, Missouri, North Carolina, Texas, Utah and Vermont.

In Moody's view the ratings of the 10 Aaa-rated states not on downgrade review are resilient to a one notch downgrade of the sovereign bond rating at this time. Should the sovereign rating be lowered and move by more than one notch, Moody's would likely assess whether these remaining Aaa state ratings should be placed on review for downgrade as well.

RATIONALE FOR REVIEW

"While all states are indirectly linked to the U.S. government to some degree, we have identified the five Aaa-rated states that are most vulnerable to changes in the U.S. government rating," said Nicholas Samuels, a Vice President in Moody's State Ratings Team. These five states have above average exposure to several sovereign risk factors that Moody's outlined in a July 13 special comment, "Implications of a U.S. Rating Action for Aaa-Rated U.S. Municipal Credits." The risk factors are macroeconomic sensitivity, capital markets reliance, and dependence on federal revenues, offset by financial resources available to counteract those risks.

Moody's will perform additional analysis of the sovereign risk factors in the five affected states on a case-by-case basis, and examine additional mitigants to determine if their financial position and governance are strong enough to negate the impact of a potential U.S. downgrade. In the event the U.S. government's Aaa rating is downgraded due to a default following a failure to raise the debt ceiling, Moody's will not automatically downgrade these five state ratings but will proceed with case-by-case reviews.

To determine each state's vulnerability to those factors, Moody's examined six measures:

• Employment volatility due to U.S. factors;

• Federal employment as a percentage of total state employment;

• Federal procurement contracts as a percentage of state gross domestic product;

• Medicaid as a percentage of total state expenditures;

• Puttable variable rate debt as a percentage of available resources; and

• As a mitigant to those risks, available operating fund balance as a percentage of operating revenue.

SPECIFIC FACTORS RELATED TO THE FIVE AFFECTED STATES

Each of the five states placed under review have risk factors that apply to them individually, as described below:

MARYLAND

• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody's Economy.com measure of employment volatility due to U.S. fluctuations: Above average

• Federal employees as a percentage of the state's total employment: Above average

• Capital markets risk: Low due to a small amount of puttable variable rate debt outstanding

• Federal procurement contracts as a percentage of state gross domestic product: Above average

• Medicaid as a percentage of total expenditures: Average

• Available fund balance as a percentage of operating revenue: Below average

NEW MEXICO

• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody's Economy.com measure of employment volatility due to U.S. fluctuations: Below average

• Federal employees as a percentage of the state's total employment: Above average

• Capital markets risk: Relatively high due to above average amount of puttable variable rate debt outstanding

• Federal procurement contracts as a percentage of state gross domestic product: Above average

• Medicaid as a percentage of total expenditures: Above average

• Available fund balance as a percentage of operating revenue: Above average

SOUTH CAROLINA

• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody's Economy.com measure of employment volatility due to U.S. fluctuations: Average

• Federal employees as a percentage of the state's total employment: Below average

• Capital markets risk: Relatively high due to above average amount of puttable variable rate debt outstanding

• Federal procurement contracts as a percentage of state gross domestic product: Above average

• Medicaid as a percentage of total expenditures: Above average

• Available fund balance as a percentage of operating revenue: Below average

TENNESSEE

• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody's Economy.com measure of employment volatility due to U.S. fluctuations: Above average

• Federal employees as a percentage of the state's total employment: Above average

• Capital markets risk: Relatively high due to above average amount of puttable variable rate debt outstanding

• Federal procurement contracts as a percentage of state gross domestic product: Average

• Medicaid as a percentage of total expenditures: Above average

• Available fund balance as a percentage of operating revenue: Below average

VIRGINIA

• Sensitivity to national economic trends compared to other Aaa-rated states based on Moody's Economy.com measure of employment volatility due to U.S. fluctuations: Above average

• Federal employees as a percentage of the state's total employment: Above average

• Capital markets risk: Low due to a small amount of puttable variable rate debt outstanding

• Federal procurement contracts as a percentage of state gross domestic product: Above average

• Medicaid as a percentage of total expenditures: Below average

• Available fund balance as a percentage of operating revenue: Below average

Concurrently Moody's also places on review for downgrade the ratings of these five states' intercept program ratings and the ratings of the individual financings that benefit from these intercept mechanisms.

For a complete list of affected securities and additional analysis, please visit www.moodys.com/USRatingActions.

REGULATORY DISCLOSURES

Please see the rating methodologies tab on the Credit Policy page on moodys.com for the relevant methodology for each action.

Please see the ratings tab on the issuer / entity page on moodys.com for the last Credit Rating Action and the rating history.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

New York
Robert A. Kurtter
MD - Public Finance
Public Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Nicholas Samuels
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S PLACES RATINGS OF FIVE OF 15 Aaa STATES ON REVIEW FOR POSSIBLE DOWNGRADE DUE TO U.S. SOVEREIGN RISK VULNERABILITY
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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