Moody's Investors Service placed 177 top-rated municipal bond issuers with a combined $69 billion of debt on review for possible downgrade as it evaluates the Aaa rating of the U.S. government.
The change affects 162 local governments in 31 states, 14 housing-finance programs and one university, all of which have high exposure to federal spending changes and market volatility, Moody's said in a statement. Virginia and Massachusetts are the states with the most local governments affected.
“The ratings of these local governments, particularly those with a high economic dependence on federal activity, would be vulnerable to a downgrade of the U.S. government,” said Moody's Senior Vice President Matt Jones, a team leader covering local government ratings, in the statement.
Issuers and bonds put on review include the University of Washington, the Colorado Housing and Finance Authority single- family mortgage bonds and 29 school districts.
On July 13, Moody's put the U.S. rating on review, saying the federal government could lose its top rating and be unable to borrow if Congress and President Barack Obama fail to craft a plan to raise the $14.3 trillion debt limit by Aug. 2. Top-rated Maryland, New Mexico, South Carolina, Tennessee and Virginia were put on review by Moody's July 19 because of their reliance on the U.S. government.
Moody's already has 7,000 top-rated municipal credits on review that would be automatically downgraded if the U.S. loses its top rating.
The issuers put on review today would be evaluated based on their links to the federal government through “direct and indirect reliance on federal spending, sensitivity to deteriorating macroeconomic conditions and vulnerability to disruptions in the financial markets” before they are downgraded, the statement said.