Bond Ratings Another Worry for Gulf Coast Districts
Hurricanes Katrina and Rita have wreaked highly visible havoc on schools in the Gulf Coast region, but their impact in a more esoteric realm—school districts’ bonded debt—is just becoming clear. The picture that emerges could say a lot about those districts’ prospects for recovery.
Though other states were affected, Louisiana and Mississippi have received the bulk of attention from bond-rating firms trying to gauge the increased financial risk to investors who have purchased school district and other local government bonds. In those two states, the analysts cautioned that some districts that were previously considered financially sound face the small but real possibility of default.
“This is an unprecedented incident in the municipal-bond market—having a major disruption due to a natural event that’s not really caused by financial problems of the borrower,” meaning the school district, said Jay H. Abrams, the chief municipal-credit analyst for FMS Bonds Inc., an investment firm that...
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