November 1, 2012 – Local governments on the East Coast hit hardest by Hurricane Sandy could face downward pressure on their credits if they have significant un-budgeted costs for cleanup that are not covered by insurance or various kinds of aid, Moody’s Investors Service said in a report issued Thursday. But such downgrades would be rare and only in extreme cases, according to the rating agency. “U.S. municipal issuers have an extremely strong track record of recovering from natural disasters [such as Hurricanes Isaac and Irene] without impairments to bondholders,” the report said. “The immediate disruptions of these disasters tend to cause short-term liquidity problems,” Moody’s said, “but subsequent spending from insurance, federal aid, state support and private charitable donations is very stimulative for local and regional economies.” The Moody’s report followed one published Wednesday by Standard & Poor’s. In that report, Standard & Poor’s said it “does not expect to see deterioration in investment-grade credits” if there are short-term service interruptions and issuers have business interruption insurance or are eligible for Federal Emergency Management Agency reimbursements. However, Standard & Poor’s said it is monitoring credits that have been affected by Hurricane Sandy and could revise its views. If the revenue-generating capacity of an issuer or borrower is “materially impaired for an extended period, credit quality could be pressured,” the rating agency said. Moody’s said the most vulnerable kinds of debt include: sales and special tax revenue bonds, revenue bonds supported by operations of health care, educational, housing or other enterprise entities, and issuers of other revenue bonds.
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