Municipal Market Advisors' recent research on ratings seems
to counter recently raised concerns that Standard & Poor's ratings for some
local governments may be too high and out of step with current credit
conditions. An analyst expressed concerns in a report last month and suggested
S&P's higher ratings would increase the potential for rating shopping among
issuers.
But MMA's ratings research, published in an article in its
latest Weekly Outlook, provides a different view. MMA summarized the results of
its recent survey of split ratings from S&P and Moody's Investors Service
on the same municipal bonds, as well as an examination of market share among
the rating agencies.
MMA said the prevalence of split ratings increased to 46% in
mid-August from 43% in November of last year. The advisory firm looked the
universe of 108,000 outstanding municipal Cusips with ratings from both
Standard & Poor's and Moody's Investors Service that were uninsured,
non-refunded, fixed rate, and with an investment grade rating from Moody's as
of Aug. 15 and compared those results to a similar survey it did as of Nov. 27,
2013.
In addition, MMA found rating splits have increased at
different rates in different rating categories as of the third quarter of this
year.
Until now, many market participants have contended that
S&P's upgrades on its methodological adjustments and Moody's bearish view
on fundamental credit quality would help S&P catch up to the higher ratings
produced by Moody's recalibration in 2010, MMA said.
General obligation bonds have a default rate over the last
year of 0.03%, with default defined as an ongoing, uncured payment default on
bondholders. Defaults of tax-backed appropriation credits are more prevalent,
but are still only 0.23%.
MMA said that S&P's higher ratings may result from a
difference in methodologies, especially with respect to loss-given-default
expectations and perceptions of willingness to pay dynamics, as well as a more
optimistic view of fundamental credit vectors. But it said it finds little
evidence that S&P is trying to buy market share.
MMA suggested that Moody's may be becoming less negative in
its ratings.
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