Moody’s – Page 4 – Infinite Unknown

The rating firm warns that the risk is rising that the state could have trouble paying its bondholders if the budget stalemate in Sacramento doesn’t end soon.

Two out of three major bond-rating firms now agree: California’s credit grade should begin with a B — a dismal comment on the state’s finances.

Moody’s Investors Service on Tuesday cut the state’s debt rating two notches, to Baa1 from A2, warning that the risk was rising that California could have trouble paying its bondholders if the budget stalemate in Sacramento didn’t end soon.

The firm said the state remained on its “watchlist” for further downgrades.

Moody’s Baa1 rating is just three notches above the level at which California’s $59 billion in general obligation bonds would be considered “junk,” or no longer investment-grade in quality. Next would be Baa2, then Baa3, then the junk rating of Ba.

June 19 (Bloomberg) — California’s credit rating, already the lowest among U.S. states, may be cut several levels by Moody’s Investors Service as government leaders seek ways to eliminate a $24 billion budget deficit.

The move would affect $72 billion of debt, Moody’s said in a statement today. California’s full faith and credit pledge is rated A2 by Moody’s, five steps above high-yield, high-risk status, or junk.

A downgrade may increase the state’s borrowing cost and raise the yield paid to investors on its bonds. Standard & Poor’s put California on watch for a possible reduction earlier this week, and Fitch Ratings did the same thing May 29. The rating companies cited the most-populous state’s deficit — amounting to more than 20 percent of the general fund — and lawmakers’ inability to agree on how to close the gap.

“If the Legislature does not take action quickly, the state’s cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July,” Moody’s said in a report today. “Lack of action could result in a multi-notch downgrade.”

Moody’s cuts California’s credit rating below A, may cut more

California’s credit rating may be cut several levels: Moody’s