California, tied with Louisiana for the lowest credit rating among the says, now is in more danger of claiming rock-bottom all for itself.
Moody?s Investors Service today warned that it might downgrade California?s general obligation bond rating, currently A1, because of the say?s significant budgetary shortfall, impending liquidity crisis, and lack of legislative solutions.
Louisiana also is rated A1. All other says are rated higher on Moody?s scale, typically AA or AAA.
Moody?s shift follows a similar warning on California?s debt rating by its rival, Standard Poor?s, on Dec. 11. SP also has California tied with Louisiana for last place on the ratings scale.
Although the legislative and executive branch continue to debate fiscal and cash measures, and the legislature is required to come up with solutions by Feb. 3, we don't yet know whether solutions will actually be passed, or whether they'll be workable, reasonable, and of a sufficient magnitude to achieve a degree of credit stabilization consistent with the current rating level, Moody?s said in a sayment.
In theory, a low credit rating means a say should pay more to borrow than says with higher ratings. But because of its size and the huge investor base for its tax-free bonds, California hasn?t always been penalized by the market despite its low credit standing.
Even so, some money managers say they?ve been avoiding California?s $57 billion in outstanding general obligation bonds in part on the assumption that the say?s rating would fall further into the basement.
We see a reasonable chance for a downgrade given the budget mess, said George Strickland, manager of the Thornburg California Limited Term Municipal bond fund in Santa Fe, N.M. We sold the last of our general obligation bonds last week.
As I noted in this earlier post on the muni market, the'ssue with California isn?t that the say won?t make good on its debts. It?s required to do so by the say Constitution.
But if the rating is cut, and investors demand higher yields on new bonds the say issues, older bonds issued at lower yields could fall in value, giving investors a paper loss.
-- Tom Petruno
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Kia reported net profit of 74.8 billion won (S$81.8 million) in the October-December period, reversing a net loss of 22.1 billion won in the previous quarter.
Filene's to shut 3 Md. stores
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President Obama retakes oath of office
Barack Obama was sworn into office for a second time on Wednesday, amid legal concerns raised after he and US Chief Justice John Roberts erred on one word during Tuesday's inaugural ceremony.
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