When Standard & Poor’s Ratings Services evaluates a U.S. local government’s general obligation (GO) credit quality, it does so from a holistic point of view, looking at all the features it thinks could influence credit quality. They include financial performance, management, and debt burden and other long-term obligations, as well as the area’s economy. Likewise, when a local government requests a rating on a series of revenue bonds (such as a water or sewer system), we review the system, its strengths, and challenges.
For both GO and revenue ratings, the local economy is an important factor in our analysis. This frequently includes the relative health of other municipalities that surround or overlap the issuer, and who often share similar demographic trends. The financial and economic health of these other governments helps inform our understanding of the local economy, be the influence good or bad. In some instances where a direct impact exists–such as a weak state that delays payments of necessary operating dollars to local governments because of its own financial pressures or different municipal entities with shared financial resources such as pooled cash–it can have credit implications.
However, in instances where–save geographic location–no direct link exists between different issuers and/or separate security pledges within one issuer, we don’t automatically cap ratings due to the proximity of a struggling municipality or strained internal operations, particularly if the issuers are legally unrelated.
Overview
- Standard & Poor’s does not tie the rating on one U.S. local government issuer to another based on geography alone.
- We evaluate U.S. municipal issuers independently, and if a credit quality relationship exists, we factor it into the rating.
- Internal pressures on related issuers are more likely to have a correlating rating impact, and we assess each situation independently.
24-Sep-2015