Posted on 05/21/2004 7:17:11 PM PDT by nypokerface
SAN FRANCISCO (Reuters) - A leading Wall Street ratings agency on Friday raised California's credit rating, citing an improving economy, the first such upgrade in four years and a move that promised to bring down the state's borrowing costs on $44 billion in debt.
Analysts saw the unexpected credit upgrade by Moody's Investors Service as an endorsement of the steps Gov. Arnold Schwarzenegger has taken to bring California back from the brink of a fiscal crisis that drove its credit ratings near junk levels and had threatened to effectively shut the state out of the bond market for new borrowing.
Citing an "established trend of recovery," Moody's raised California's rating to A3 from Baa1, reversing a downgrade it made in December out of concern over continued political deadlock and a move by Schwarzenegger to cut car license fees.
Moody's rivals Standard & Poor's and Fitch Ratings said they want to see the budget that California lawmakers pass for the fiscal year starting in July before weighing ratings changes of their own.
Schwarzenegger, who has proposed a budget plan that would close a $14 billion budget gap without raising taxes, applauded Moody's: "Their financial analysts have had a chance to carefully review our revised budget and our economic outlook, and they've concluded that it warrants an improvement in California's standing in the nation's financial markets."
Moody's upgrade affects about $35 billion of outstanding general obligation bonds and nearly $9 billion of lease revenue bonds and enhanced tobacco bonds backed by the state's general fund. The upgrade was Moody's first since September 2000 for California's general obligation debt.
Employment in California's private sector and personal income in the state have resumed a "moderate pace of growth," and tax collections signal an economic recovery, Moody's said.
California's credit rating may be in line for additional upgrades, said Evan Rourke, a municipal strategist at Popular Securities in New York. "I would expect that barring some kind of disaster or extraordinary event, you're likely to see further improvement. It's a reflection of the improved economy and credit conditions," Rourke said.
WAITING FOR THE BUDGET
"Nothing has really changed," said S&P analyst Steven Zimmermann, whose firm rates the state's general obligation debt BBB with a positive outlook. "We'll continue with that and we'll look to see what the budget is like."
Fitch Ratings analyst Richard Raphael said his firm, which rates California's general obligation debt BBB, with a negative outlook, also is waiting to examine the budget. "We've basically said that budgetary decisions will be the primary rating factor in the future," Raphael said.
Ratings agencies in recent years slashed California's credit rating to near-junk status because it failed to pass balanced budgets on time. It has the lowest rating of any state.
Schwarzenegger's new plan reflected an ongoing gain of more than $1 billion from stronger tax receipts than forecast in January and strong personal income growth.
Despite its upbeat assessment of California's economy, Moody's said its new rating for the state's debt remained "well below" an average rating of Aa2 for all states, due to California's "ongoing fiscal challenges."
California's legislative analyst has warned that provisions in the revised budget plan would cause shortfalls to return, with annual deficits above $6.5 billion well into the future.
California Treasurer Phil Angelides said Moody's upgrade was "welcome news, as it might help lower the state's future borrowing costs." However, Angelides, a Democrat, who has called for Republican Schwarzenegger to propose tax increases, said the state must address its structural budget deficit.
"Moody's itself said as much," Angelides said.
"Analysts saw the unexpected credit upgrade by Moody's Investors Service as an endorsement of the steps Gov. Arnold Schwarzenegger has taken to bring California back from the brink of a fiscal crisis that drove its credit ratings near junk levels and had threatened to effectively shut the state out of the bond market for new borrowing. "
Thank you, Arnold!
Actually the thanks and congratulations go to the people of California who took it upon themselves and marched the biggest left wing socialist governor in the coutry to the political gallows, and hang him with a political rope.
It was a grassroots effort by millions of Californian's, without them, Schwarzenegger would not even be in office.
OK.
Thank you, people of CA for having the sense to elect Arnold. :)
Actually, they could have elected Daffy Duck and he would have made a better governor than Davis.
The bond rating determines the interest a company will have to offer to entice investors to buy its bonds, and are expressed using a combination of letters, numbers, and plus or minus signs such as AAA, BA1, B- and the like. The combination of symbols used by each rating service varies somewhat, but “AAA” always indicates the highest quality rating, and any rating starting with “A” signifies reasonably high quality debt. Three letter ratings starting with “B” such as BAA or BBB indicate lower quality debt than “A” ratings, but don’t signal significant risk. Two letter “B” ratings such as “BB” or “Ba1” signify “non-investment grade” securities. Single letter “B” ratings such as “B1” are considered highly speculative, and any “C” rated bond is considered to have substantial risk. The agencies also evaluate the overall credit quality of the company using the same rating system. You can see a summary of the ratings issued by each major agency by going to Bonds Online (www.bondsonline.com).
I noticed that the constant stream of bad news and doomsday articles about CA seemed to end when Arnold took over.
Yes, that is a remarkable coincidence! LOL!!!
fyi
Moody's Investor's Service has upgraded California's general obligation bond rating, to A3 from Baa1, citing an improving economy and a positive outlook on the governor's budget proposals. But Moody's notes that Schwarzenegger's budget, even if approved by the Legislature, would still not come close to wiping out the state's structural deficit.
"The budget's structural imbalance situation represents a significant ongoing fiscal challenge for California, and is a primary reason for the still quite low bond rating relative to other states," the report says.
Read the whole thing here.
Thanks for the head's up. I just hope that the economy doesn't get shut down by either power outages or high power prices this summer.
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