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Fitch Ratings (Fitch) has downgraded a substantial amount of public finance credits following its decision to strip the US government debt of its AAA status, as reported by Bloomberg. This downgrade to AA+, the second-highest ranking, had an impact on several municipal bonds, totaling $21.5 billion for the federally owned Tennessee Valley Authority’s global power bonds.
Moreover, Fitch’s rating cut extended to include $3.5 billion of pre-refunded municipal bonds, whose repayments heavily depended on US government and agency obligations held in escrow. An additional $1.8 billion of municipal housing bonds, secured mainly by mortgage-backed securities issued by Ginnie Mae, Fannie Mae, or Freddie Mac, were also affected. Despite these downgrades, Fitch reported a stable outlook for the affected bonds.
The warning of possible downgrades in the municipal-bond market was not unexpected, as Fitch had already indicated in May its concerns about the dependency of some public finance credits on sovereign credit for repayment. Approximately $42.5 million of debt related to the Federal Home Loan Banks of Atlanta and Des Moines remained under Fitch’s watch.
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