Jan. 27 (Bloomberg) -- Standard & Poor’s plans to review its criteria for evaluating U.S. local-government debt to make the ratings more comparable with grades on other bonds.
The change would affect general-obligation securities from municipal governments that aren’t special-purpose districts, according to the notice. Cities, counties, towns, villages, townships and boroughs would be included, while school districts and park districts would be among the exempt.
“The purpose of the update is to constantly improve our criteria,” Jeffrey Previdi, one of the primary credit analysts on S&P’s notice, said in a phone interview from New York. “If that causes us to alter some ratings, that may be what we need to do, but this is not being undertaken to do some sort of rescaling of our ratings.”
Most grades won’t change based on the proposed criteria, and the majority of those that do would shift one level, the notice said. S&P will publish a request for comment that outlines the proposals and will consider feedback before releasing the updated methodology, the company said.
One aim of the review is to increase transparency of how S&P decides ratings, Previdi said.
When writing the criteria, S&P may consider risks such as direct loans from banks to local governments, he said.
Moody’s Investors Service in 2010 moved its U.S. municipal ratings to a global scale to grade munis similarly to issuers such as corporations. About 70,000 ratings were subject to that adjustment, according to a Moody’s statement.
“Traditionally, all three rating agencies have held public debt to a different standard than they have private debt, and not to a positive standard,” David Vehaun, the city manager of Rock Hill, South Carolina, said in a telephone interview. “Anything they can do so public and private debt are rated on par, we would welcome.”
When Moody’s adjusted its scale, it boosted Rock Hill’s rating, said Vehaun, who is a member of the Government Finance Officers Association. The city has an Aa3 grade from Moody’s, the fourth-highest, and A+ from S&P, the fifth-best.
Moody’s recalibrated local-government ratings in 2010 and doesn’t plan more methodology changes at this time, David Jacobson, a spokesman in New York, said in an e-mail.
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