Moody’s reviews debt for possible downgrade, cites budget gap
NEW YORK–Moody’s Investors Service yesterday placed California’s general obligation debt on alert for a possible multi-notch downgrade, citing the state’s strained public finances.
The agency rates California at A2, its sixth-highest investment grade and the lowest rating of any state in the United States. Leasing debt and other state-related debt are also on review, affecting a total of $72 billion (U.S.) of debt, Moody’s said in a statement.
The action reflects an expected budget gap for fiscal 2010 of more than $20 billion, or more than 20 per cent of the general fund budget; the announcements by the state controller that without solutions California will not be able to meet all its financial obligations in July; a continued political stalemate and the limited options available, said the agency. "If the legislature does not take action quickly, the state’s cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July," the agency said free business card.
"Lack of action could result in a multi-notch downgrade."
The A2 rating is just five notches above speculative, or "junk" status.
Standard & Poor’s on Monday placed California on review for a possible downgrade, also citing concerns about the state’s fiscal stress.
Spreads on California’s GO bonds have widened as the budget crisis has worsened and may widen further with Governor Arnold Schwarzenegger and lawmakers debating how to plug the deficit.
Since May 1, the yield on the five-year California GO scale is up 92 basis points, compared with a rise of 41 basis points for the five-year benchmark Municipal Market Data triple-A scale.
Reuters News Agency