Fitch downgrades California’s general obligation debt

CHICAGO, June 25 (Reuters) – Fitch Ratings on Thursday downgraded the rating on California’s general obligation debt and said it may lower the rating again, citing the state’s continued fiscal and economic stress.

The agency cut the state’s rating by one notch to A-minus, placing it four notches above speculative, or “junk” status, and making it the lowest rating of any U.S. state.

The debt remains on negative watch, said Fitch, as lawmakers struggle to close a $24.3 billion budget deficit.

The agency “expects the state’s finances will continue to be strained through fiscal year 2010 and beyond regardless of any likely outcome to the current budget impasse,” it said in a statement.

The Fitch downgrade came as both Standard & Poor’s Ratings Services and Moody’s Investors Service have warned they too may downgrade California’s GO ratings.

Moody’s said last week that California could be in for a multi-notch downgrade of its A2 rating, while S&P rates $57 billion of the state’s outstanding GO bonds A. The Fitch rating is now lower than that of its two main rivals.

On Wednesday, California’s controller said IOUs may have to be issued in a week to pay bills if lawmakers fail to patch the budget soon. The state’s new fiscal year begins July 1.

(Reporting by Karen Pierog; Additional reporting by Ciara Linnane in New York; Editing by James Dalgleish)

Thu Jun 25, 2009 4:25pm EDT

Source: Reuters

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