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Written by admin on September 1st, 2009

S&P Holds Off On Cutting California’s Rating

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Associates at Standard & Poor’s announced that California’s budget-balancing plan is viable enough to keep them from downgrading the state’s credit rating for the time being.

In other words, S&P stands by the A rating that it gave California’s current $67 billion in outstanding general obligation bonds and subsequently removed the state’s debt from its negative credit watch list. This decision means essentially that the California’s risk of downgrade is significantly lowered.

S&P’s evaluation is the first one given by a major ratings firm concerning the dubious budget deal that was developed by Governor Schwarzenegger and the State Legislature last month. Both Moody’s Investors and Fitch have yet to post their findings.

Currently, California has the lowest debt rating in the United States, just short of a speculative rating, which would be bad news for the state. (Most states have AA or AAA ratings.) Wall Street analysts are monitoring the progress and waiting to see what the three ratings firms decide about the budget agreement.

In the midst of the budgeting turmoil in the state, S&P maintained their A rating despite the fact that Fitch and Moody’s reduced California’s rating to BBB and Baa1 respectively.

S&P believes that the latest budget arrangement should “significantly reduces state expenses and provides a path to improved financial liquidity.”

Of course, this didn’t change the fact that Standard and Poor maintained an overall negative outlook about California’s rating for the coming six to twenty-four months.

After all, there is a distinct possibility that the economy could decline again so tax revenue would drop dramatically.

California plans a fundraising campaign in the coming month to raise up to $10.5 billion by selling revenue anticipation notes, or RANs, with a maturation period set for next spring. The level of interest the state would be required to pay for the RANs will be determined by the ratings firms’ updated ratings for the notes.

Related posts:

1. $5 Billion In Short-Term Debt Sales In California
2. Hartford Financial Debt Protection Cost Rise Following Downgrade