U.S. Muni Rating Cuts Outpace Upgrades Amid ‘Toughest Year’

U.S. municipal-bond credit ratings were cut last quarter at the second-fastest pace since 2002 amid the “toughest year so far” for state and local governments since the recession began, Moody’s Investors Service said.

Moody’s said today that it cut ratings on 66 borrowers, including Nevada and Kentucky, and raised 17 in the first three months of the year. The ratio of downgrades to upgrades was 3.9 to 1. The rate trailed only the previous three months, which had the highest ratio since 2002, the credit-rating company said. It was the ninth-straight quarter in which more ratings were cut than raised.

“The trend is likely to prevail for all of 2011,” Conor McEachern, the Moody’s assistant vice president who wrote the report, said in a statement.

Moody’s last month kept its negative outlook on U.S. state and local government bonds, projecting that borrowers are facing the worst pressure since the onset of the 18-month recession that ended in June 2009. Tax collections have yet to rebound to their 2008 peaks and federal government aid is lapsing this year.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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