NOTE: On March 15, 2016, the press release was corrected as follows: In the paragraph regarding methodologies, the publication date of Moody's Approach to the Moral Obligation Pledge was changed from June 1999 to November 2008. Revised release follows.
New York, April 17, 2013 -- Moody's has announced its final approach to the way it will analyze
and adjust pension liabilities as part of its credit analysis of state
and local governments. These changes reflect the rating agency's
view that pension obligations are a significant source of credit pressure
for governments and warrant a more conservative view of the potential
size of the obligations. As a result of this new approach,
Moody's has also placed the general obligation ratings of the cities
of Chicago, Cincinnati, Minneapolis, and Portland,
OR, and of 25 other US local governments and school districts on
review for possible downgrade. The entities whose ratings have
been placed on review have large adjusted net pension liabilities relative
to their rating category.
"Pension obligations represent a growing source of budgetary pressure
for many governments. However, the manner in which these
obligations are reported varies widely, and we believe liabilities
are underreported from a balance sheet perspective," said
Timothy Blake, a Moody's Managing Director. "The
purpose of the adjustments is to provide greater transparency and comparability
in pension liability measures for use in credit analysis."
The rating agency first announced in July 2012 its intention to make changes
to the way it looks at the pension data reported by US state and local
governments as it evaluates their credit quality and initiated an open
comment period for market participants.
The rating agency's new approach is outlined in the report "Adjustments
to US State and Local Government Reported Pension Data", available
on the company's website at http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM151398.
Concurrently, Moody's has also released a revised "US
States Rating Methodology" (http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM129816)
and "General Obligation Bonds Issued by US Local Governments"
(http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM151690),
which describe how it will apply the adjusted pension data to its ratings
of those entities. The updated state methodology introduces a scorecard
with explicit weights for various rating factors and sub-factors
including pensions, as a guide to approximate credit quality.
The adjustments are not a requirement or guideline for state or local
governments to report or fund their pension obligations. Moody's
is introducing them solely for the purpose of evaluating pension risk
in the context of its credit ratings.
"Significant Outliers"
Moody's said that for the majority of US governments, their
pension obligations remain manageable in the context of their revenues
and resources.
"The local governments whose ratings have been placed on review
were determined to be significant outliers in their current rating category,"
Moody's Blake said.
The median ratio of Moody's adjusted net pension liability to annual
operating revenues as of fiscal 2011 is under 100%. The
threshold for Aaa-rated governments to be placed under review as
a result of this metric was 300%, or more than three times
the median level for the sector. The thresholds applied to entities
rated in the Aa, A, and Baa categories were 400%,
500%, and 600% respectively. A summary of the
key input data and the Moody's adjustments for each entity with
ratings placed under review is available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM152921.
Moody's rates over 8,000 local governments in the United States.
Less than 1% of those with general obligation or equivalent ratings
have been placed under review because of the new pension adjustments.
No state government ratings are affected as a result of these changes
at this time. However, rising pension liabilities have been
a factor in a number of state and local government credit rating downgrades
and outlook changes over the last several years.
Moody's expects any rating changes resulting from the current reviews
to be one or two notch downgrades and, depending on mitigating factors,
some ratings could be confirmed. Most reviews should be completed
within 90 days, but some could take as long as 180 days, if
necessary.
As part of its analysis, Moody's has also conducted a review
of recently enacted pension reforms in relevant states and jurisdictions,
to determine whether the changes would be likely to result in a material
reduction in accrued pension liabilities subsequent to the fiscal 2011
reporting date.
The reviews affect a total of approximately $12.5 billion
of debt. For a number of governments, certain of their special
tax, lease, and/or other related ratings have been placed
under review as well as their general obligation (G.O.)
debt.
The list of local government ratings placed on review follows:
Alamogordo (City of) NM -- Aa3 General Obligation bonds; A1
Gross Receipts Tax Revenue bonds
Carman-Ainsworth Community School, MI -- Aa3 General
Obligation bonds; A1 Limited Tax G.O. bonds
Chicago (City of) IL -- Aa3 General Obligation bonds; Aa3 Sales
Tax Revenue bonds
Cincinnati (City of) OH -- Aa1 General Obligation bonds; Aa2
Economic Development Revenue bonds; Aa2 Recovery Zone Facility Revenue
bonds; Aa2 Annual Appropriation bonds
Douglas (County of) NV -- Aa2 General Obligation bonds
Dublin City School District, OH -- Aaa General Obligation bonds
Elk Grove (Village of) IL -- Aaa General Obligation bonds
Evanston (City of) IL -- Aaa General Obligation bonds
Fairfield City S.D. (Butler County), OH -- Aa2
General Obligation bonds
Fruitport Community School District, MI -- Aa3 General Obligation
bonds
Glen Lake Community Schools, MI -- Aa2 General Obligation bonds
Great Oaks Inst. of Tech. & Career Dev.,
OH -- Aaa General Obligation bonds
Lakota Local S.D. (Butler County), OH -- Aaa
General Obligation bonds
Las Vegas (City of), NM -- A1 Gross Receipts Tax Revenue bonds
Mason City School District, OH -- Aaa General Obligation bonds
Minneapolis (City of) MN -- Aaa General Obligation bonds
Murray (City of) KY -- Aa3 General Obligation bonds
Napoleon (City of) OH -- Aa3 General Obligation bonds
Oak Hills Local School District, OH -- Aa2 General Obligation
bonds
Orange City School District, OH -- Aaa General Obligation bonds
Petoskey Public Schools, MI -- Aa2 General Obligation bonds
Portland (City of) OR --Aaa General Obligation bonds; Aa1 Limited
Tax General Obligation bonds; Aa2 Housing Revenue bonds; Aa2
Gas Tax bonds; Aa3 Urban Renewal and Redevelopment bonds
Santa Fe (City of) NM -- Aa2 General Obligation bonds; Aa2 Gross
Receipts Tax Revenue bonds; Aa3 Gross Receipts Tax Revenue bonds;
A1 Subordinate Lien Gross Receipts Tax bonds
Santa Fe (County of) NM -- Aaa General Obligation bonds; Aa1
Gross Receipts Tax Revenue bonds
Sycamore Community School District, OH -- Aaa General Obligation
bonds; Aa1 Certificates of Participation
Tolles Career and Technical Center, OH -- Aaa General Obligation
bonds
Trenton Public Schools, MI -- Aa3 General Obligation bonds
Virginia (City of) MN -- A2 General Obligation bonds; A3 Health
Care Facilities Lease Revenue bonds
Wayne County Joint Vocational S.D., OH -- Aa3
Certificates of Participation
PRINCIPAL METHODOLOGY
The principal methodology used in rating the general obligation bonds
was General Obligation Bonds Issued by US Local Governments published
in April 2013, the principal methodology used in rating the gross
receipts tax, sales tax, and gas tax bonds was US Public Finance
Special Tax Methodology published in March 2012, the principal methodology
used in rating the economic development, recovery zone facility,
annual appropriation, urban renewal and redevelopment, certificates
of participation, and health care facilities lease bonds was The
Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations
published in December 2011, and the principal methodology used in
rating the housing bonds was Moody's Approach to the Moral Obligation
Pledge published in November 2008.
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.
Toby Cook
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
600 North Pearl Street
Suite 2165
Dallas, TX 75201
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 announces new approach to analyzing state, local government pensions; 29 local governments placed under review