Tuesday, July 19, 2011

Moody's eyes rating cuts for 5 US states

Source: Press TV

Moody's credit rating agency has warned it may cut the ratings of five US states if the country defaults on its debt after the August 2 deadline.

The present Aaa bond rating of 15 states in the country may be at risk, but Moody's said on Tuesday that Maryland, New Mexico, South Carolina, Tennessee and Virginia were put on review for their high federal employment levels and Medicaid exposure -- factors playing a major role in the country's potential default on its debt, Reuters reported.

"A triple-A rating is the highest for debt and tells investors an institutional borrower presents a minimal credit risk," Moody's writes in its website.

Moody's has announced it will place the 5 states on a second review if the US fails to raise its debt ceiling by the deadline.

According to the agency, the other 10 states with an Aaa rating are at a much lower risk of degradation since they are "resilient enough to withstand a one-notch downgrade" in the US government's rating; however, if the rating agency lowers the country's rating by more than one notch, "the status of those 10 states could change."

"The remaining 35 states and the District of Columbia have lower credit ratings," the Moody's says.

Moody's has said in a statement that it sees a "rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations."

The US rating would likely be reduced to the Aa1 range, and there is no assurance that Moody's would return its top-notch credit rating even if a default is quickly cured.

The US debt ceiling is capped at $14.3 trillion, up from $10.6 trillion when US President Barack Obama took office in 2009, and the administration says that if it is not elevated by August 2, the government would default on its obligations.

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