That’s the great Aaa states of New Mexico, South Carolina, Virginia, Tennessee and Maryland, for those unfamiliar with US postal abbreviations.
Moody’s Tuesday action was forewarned last week when it placed the US sovereign’s AAA rating on review for possible downgrade. The credit rating agencies are busy at the moment, working out the consequences of any sovereign action on the thousands of securities directly or indirectly linked to the hub of the global bond market.
Moody’s rates 15 states as Aaa. The 10 not downgraded are Alaska, Delaware, Georgia, Indiana, Iowa, Missouri, North Carolina, Texas, Utah and Vermont.
The decision to place on review was based on how each state scored on the following criteria:
• Employment volatility due to U.S. factors;
• Federal employment as a percentage of total state employment;
• Federal procurement contracts as a percentage of state gross domestic product;
• Medicaid as a percentage of total state expenditures;
• Puttable variable rate debt as a percentage of available resources; and
• As a mitigant to those risks, available operating fund balance as a percentage of operating revenue.
At first glance, some of these factors — especially Medicaid payments — appear more vulnerable to a large debt reduction deal than they do to a downgrade because of a deal’s absence. The high levels of variable rate debt exposure are probably the most worrisome criterion, but it’s not clear what weightings were put on the different factors.
At pixel time, details of yet another debt ceiling plan were emerging, with the return of the Gang of Six. So perhaps there’s hope for a comprehensive deal yet. (Although it’ll still be a nightmare to get this through the House — it’s not that different from the deal President Obama has been aiming at all along.)
But if there’s no deal, or if Moody’s ends up downgrading the US sovereign, it’ll be somewhat ironic if a year that began with munis losing their safe haven status ended with 10 states being ostensibly safer than the US itself.
Related link:
Five U.S. States With Aaa Debt Ratings on Moody’s Review for Possible Cut – Bloomberg