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Rating Action:

Moody's changes rating outlooks on 22 Aaa municipal credits indirectly linked to US government

05 Feb 2013

New York, February 05, 2013 -- Moody's Investors Service has changed the rating outlook to negative from stable on nine state and local governments, including the State of Missouri, and two state housing finance agency programs, in conjunction with an updated analysis of which Aaa-rated issuers have indirect linkages to the federal government. At the same time, Moody's has changed the outlook to stable from negative on another eleven issuers, mostly housing finance agency (HFA) pooled single family loan programs, that the rating agency has determined no longer have a significant linkage to the US government.

Moody's currently rates the US government Aaa with a negative outlook. An indirect linkage to the federal government's rating means that were the US rating to be placed under review or downgraded the ratings on the linked entity would be placed under review or downgraded as well. An entity's rating may be considered linked because of economic sensitivity to federal spending reductions, dependence on federal transfers, or exposure to a capital market disruption. Following today's revisions, a total of 4 states, 40 local governments, and 26 HFA programs are considered linked.

State and local government rating outlooks changed to negative based on the determination that they are more indirectly linked to the US rating are:

AMES (CITY OF) IA

CHARLESTON (COUNTY OF) SC

CHARLESTON COUNTY PARK & RECREATION DISTRICT, SC

EASTON (TOWN OF) CT

INDIANAPOLIS (CITY OF) IN

LINN (COUNTY OF) IA

MISSOURI (STATE OF)

OLMSTED (COUNTY OF) MN

ROCHESTER (CITY OF) MN

Additionally, Cedar Rapids, Iowa, which already has a negative outlook for fundamental reasons, is now considered indirectly linked to the US rating.

State and local rating outlooks changed to stable based on the determination that they are not as significantly linked to the US rating are:

DENVER (CITY & COUNTY OF) CO

LOWER MERION SCHOOL DISTRICT (MONTGOMERY CO.) PA

HFA whole loan single family housing program rating outlooks revised to negative based on the determination that they are indirectly linked to the US rating are:

IDAHO H&FA - SINGLE FAMILY MORTGAGE SENIOR BONDS, SERIES 2000B

IDAHO H&FA - SINGLE FAMILY MORTGAGE SENIOR BONDS, SERIES 2000E

HFA single family whole loan and mortgage-backed security program rating outlooks revised to stable based on the determination that they are not as significantly linked to the US rating are:

IDAHO H&FA - SINGLE FAMILY MORTGAGE SENIOR BONDS, SERIES 1999F

IDAHO H&FA - SINGLE FAMILY MORTGAGE SENIOR BONDS, SERIES 1998D

UTAH HC - SINGLE FAMILY MORTGAGE SENIOR BONDS 1998G CLASS I (sf)

UTAH HC - SINGLE FAMILY MORTGAGE SENIOR BONDS (NIBP)

ALABAMA HOUSING FINANCE AUTHORITY: TAXABLE MORTGAGE REVENUE BOND (COLLATERALIZED REVENUE BOND PROGRAM)

ALABAMA HOUSING FINANCE AUTHORITY: COLLATERALIZED SINGLE FAMILY MORTGAGE REVENUE BONDS

INDIANA HOUSING FINANCE AUTHORITY: SINGLE FAMILY MORTGAGE REVENUE BONDS

LOUISIANA HOUSING FINANCE AGENCY: HOMEOWNERSHIP PROGRAM

OKLAHOMA HOUSING FINANCE AGENCY: HOMEOWNERSHIP LOAN PROGRAM

We have also have affirmed the State of Alaska's Aaa rating and stable outlook. While Alaska's federal employment levels create a high level of economic linkage to the sovereign rating, the state's finances are driven almost entirely by the oil and gas sector. Alaska's economic and financial separation is significant enough that in our opinion the state would not likely be affected by a potential one notch downgrade of the US government.

RATING RATIONALE

In December 2011, Moody's completed an assessment of its Aaa-rated state and local government credits to determine their linkages to the US government following the revision of the sovereign outlook to negative on August 2, 2011. At that time, Moody's said it would be screening state and local governments annually in order to update the list of these indirectly linked municipalities. Today's outlook revisions conclude our annual update to that assessment.

The large majority of Aaa-rated state and local governments demonstrate an adequate degree of independence from the credit condition of the US government and therefore could be rated higher than the sovereign if the US government were to be downgraded by one notch. In total, Moody's has Aaa ratings on 15 states and 433 local governments in the US. Certain issuers, however, have greater exposure to potential federal cuts or are highly dependent on federal employment, procurement, or transfer payments.

The majority of US Aaa issuers that have stable outlooks still represents a very small share of the more than 15,000 US public finance credits rated by Moody's. Most of our non-US sub-sovereign issuers tend to be highly exposed to the same macroeconomic and financial sector pressures which affect the central government, whose credit quality therefore typically anchors most sub-sovereign issuers' ratings. Exceptions exist in a small portion of cases -- globally roughly 5% of rated sub-sovereigns are rated higher than their sovereign -- where issuers exhibit a high degree of independence from the sovereign. Even for exceptions, however, limits apply to their ability to be rated above the sovereign and they are typically rated no more than 1-2 notches higher than the sovereign. Moody's analysis to determine whether a municipal rating is linked to the US government's rating focuses on specific metrics such as federal procurement activity, federal employment and healthcare employment as indicators of economic sensitivity. Medicaid expenditures for states and public hospital expenditures for local governments as indicators of direct exposure to federal spending are also considered, along with the presence of short-term or puttable debt as an indicator of exposure to capital markets disruptions.

Even if the outlook of the US sovereign rating is returned to stable, the ratings of some of these states and local governments may remain pressured and their outlooks may remain negative. The measures the federal government ultimately takes to reduce its deficits could result in substantial cuts to government spending or transfers in an area where the municipality has a concentration and could result in an outsized impact on its economy and finances.

Certain municipal issuers that already have negative outlooks for reasons unrelated to US government rating pressure maintain those outlooks. Additional information on those issuers can be found in the individual research on those entities at www.moodys.com.

The outlook revisions for HFA pooled loan programs reflect an update to the analysis Moody's concluded in August 2011. Generally, unless there are certain strong levels of overcollateralization, HFA pooled programs backed by single family whole loans with high proportions of FHA mortgage insurance, and those backed by single family mortgage-backed securities guaranteed by GNMA and other federal agencies, are treated as linked to the US government. Formerly treated as a mix of direct and indirect linkages, these program types are now all treated as indirectly linked to the US.

A complete list of affected securities and a special comment with additional analysis, "Update: Ratings of Aaa Municipal Credits Indirectly Linked to the US Government" is available at www.moodys.com/USRatingActions.

RATING METHODOLOGY

The principal methodology used in rating the local government general obligation bonds was General Obligation Bonds Issued by U.S. Local Governments published in October 2009, the principal methodology used in rating the state general obligation bonds was Moody's State Rating Methodology published in November 2004, and the principal methodology used in rating the related entities of the state and local governments was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011.

The principal methodology used in rating the single family housing bonds was Moody's Rating Approach for Single Family, Whole-Loan Programs, published in May 1999, and the principal methodology used in rating the state HFA MBS bonds was Strength in Structure: Moody's Approach to Rating Single-Family Housing Bonds Secured by Mortgage-Backed Securities published in October 1998. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Other Factors used in this rating are described in: How Sovereign Credit Quality May Affect Other Ratings, published in February 2012.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Nicholas E Samuels
VP - Senior Credit Officer
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Timothy F Blake
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
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 changes rating outlooks on 22 Aaa municipal credits indirectly linked to US government
No Related Data.
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