Some 280 Districts Lose Ratings on Bonds
More than 280 school districts have lost their bond ratings for failing to respond to "repeated requests for information,'' according to Moody's Investors Service, one of the nation's principal rating agencies.
The districts involved "are predominantly small and infrequent borrowers,'' said Edward R. Kerman, vice president and managing director for ratings administration at Moody's.
"A fair number, but not an overwhelming number'' supplied Moody's with the requested financial data following the rating service's decision, he added.
Investors are typically reluctant to purchase bonds with low or no ratings. Therefore, the issuer is usually forced to offer a higher interest rate, which makes the issue more attractive but generates less revenue.
The ratings service took the action May 17, withdrawing bond ratings from 447 local governments in 28 states. It was the largest such ratings withdrawal by Moody's in 10 years, Mr. Kerman said.
Moody's said the failure of the governmental units to respond to repeated requests for current financial information "precludes analysis and rating judgment.'' It said investors need accurate rating judgments, which are dependent on the latest information from the local governments.
"If the issuers do not have a rating, that is their decision,'' Mr. Kerman said. "It could potentially have an effect on their borrowing cost or their marketability. There are some funds that will only buy rated paper, or paper rated at a certain level.''
Mr. Kerman said Moody's was preparing to withdraw the ratings of several hundred more local governments in the next few weeks for the same reasons.
Most of the districts that lost their ratings are located in the Midwest and Northeast. Ohio led, with 51 districts, followed by New York and Michigan, each with 27, Indiana with 25, Iowa with 23, and Illinois with 21.
Many of the districts may see no need to continue keeping a rating with Moody's, the comments of one school official suggest.
"We have no intention of borrowing money in the near future,'' said
William J. Cameron, superintendent of the Keokuk (Iowa) Community
School District, which has about $1 million in outstanding bonded debt.
"We've completed our building program. And we're financially sound. Why
do we need a rating from Moody's?''--M.W.
Vol. 07, Issue 36