Friday, 19 June 2009

Moody's looking at downgrade of California debt

The LA Times is reporting that Moody's is anticipating a downgrade of the municipal debt for the state of California.
California, tied with Louisiana for the lowest credit rating among the states, now is in more danger of claiming rock-bottom all for itself.

Moody’s Investors Service today warned that it might downgrade California’s general obligation bond rating, currently A1, because of the state’s "significant budgetary shortfall, impending liquidity crisis, and lack of legislative solutions."

Louisiana also is rated A1. All other states are rated higher on Moody’s scale, typically AA or AAA.

Moody’s shift follows a similar warning on California’s debt rating by its rival, Standard & Poor’s, on Dec. 11. S&P also has California tied with Louisiana for last place on the ratings scale.

California_state_flag Moody’s indicated it’s running out of patience with the state as Gov. Arnold Schwarzenegger and the Legislature fail to agree on a plan to plug California’s massive projected budget shortfalls -- $15 billion in 2009 and $25 billion in 2010.

Even so, some money managers say they’ve been avoiding California’s $57 billion in outstanding general obligation bonds in part on the assumption that the state’s rating would fall further into the basement.

"We see a reasonable chance for a downgrade" given the budget mess, said George Strickland, manager of the Thornburg California Limited Term Municipal bond fund in Santa Fe, N.M. "We sold the last of our general obligation bonds last week."
CMF, is an exchange traded fund which tracks the prices of California debt and it was giving strong technical sell signals earlier this month as referenced here.

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