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Business and Policy Areas
Business and Policy Areas

Moody's Places Hurricane Institutions on Credit Watchlist for Possible Downgrade

September 22, 2005

Moody's Investors Service placed the ratings of 51 credits in the states of Louisiana and Mississippi on Watchlist for possible downgrade as a consequence of Hurricane Katrina, affecting about $9.4 billion in outstanding rated debt.  Although no defaults are currently anticipated, the ultimate extent of credit deterioration is unknown. No ratings in Alabama were added to Watchlist, as hurricane damage in that state is significantly more manageable.

As rescue operations shift toward promoting a regional recovery that will be funded by federal support, private insurance, and private philanthropy, Moody's indicated that economic and financial improvement should begin to occur across the affected region.  Given the extent of the damage in some areas, longer-term credit risks may be created in some cases if the pace and duration of recovery and rebuilding are protracted.

Moody’s anticipates that in the long run, new investments in infrastructure may lead to stronger local economies and credit conditions in some cases. Moody's will update rating actions to reflect the individual credit circumstances of each entity as information about the risks and opportunities facing each issuer becomes available.

Obviously, due to the physical damage caused by the storm, the financial operations of the affected states, their cities and counties, and other public entities (including toll roads, public hospitals, and public housing projects) have also been disrupted.

To Moody's knowledge, all debt service payments recently or immediately due have been made, while state-level finance officials have already made provisions to meet upcoming debt service obligations. The continuity of debt service payments reflects the overall strength and security of public finance credits, particularly in light of the extreme nature of current conditions.

Moody’s notes, however, that communication with local financial officials had not been possible in some areas in affected cities and towns where the damage is most severe.  In those cases, Moody’s has not been able to ascertain the status of the issuers' plans or their ability to meet upcoming debt service obligations.

State officials indicated that they recognized the need for state support in the near term and that they would consider what, if any action, would be necessary.