Many U.S. public finance obligors made difficult financial choices as a result of the Great Recession, according to Standard & Poor’s Ratings Services, yet many came through 2010 with what S&P considers to be stronger financial profiles as a result.
Although most U.S. public finance obligors will likely face more difficult choices in the coming year – perhaps even more so than in the last year, we think that, in general, the proactive management they have been exhibiting will carry forward so that our ratings will likely be relatively stable in 2011.
The total number of rating actions in U.S. public finance continued to decline in the fourth quarter of 2010, furthering the move toward greater rating stability that developed as the year progressed. The reduced level of rating change activity suggests to us the possibility of sustained credit quality stabilization, as issuers appear to be evaluating and implementing choices to maintain the quality of their financial profiles in response to the recession. In addition, the decreased total volume of upward rating changes reflects the fact that significant portions of our criteria-related reviews of state and local governments have been completed.
Upgrades continued to exceed downgrades in the fourth quarter. While this trend partially reflects reviews analytically linked to revisions in our criteria, it also captures our view of obligors whose credit is performing well despite recessionary economic conditions. In effect, the Great Recession has provided a national stress test, and although downgrades have increased on a sector-wide basis, we view many obligors’ credit quality as demonstrating resilience in this environment. By adhering to their established policies and practices, we have seen the credit quality of some obligors continue to improve even in the midst of the recession and its aftermath.