California’s Bond Credit Rating Slashed by Moody’s (Update1)
By Michael B. Marois and William Selway
July 14 (
Bloomberg) -- California’s credit rating, the lowest of all U.S. states, was cut for the second time in as many weeks amid lawmakers’ failure to close a $26 billion deficit that left the most-populous state issuing IOUs to creditors.
Moody’s Investors Service said it lowered California’s credit rating two steps to Baa1 from A2 and said it could be reduced further if legislators don’t quickly address the state’s cash problem. The new grade is three levels above non-investment grade. Fitch Investors on July 6 lowered its evaluation of California’s general obligation bonds by two steps to BBB from A-, placing the debt two ranks above so-called high-yield, high- risk junk ratings.
California this month began issuing IOUs to pay some creditors, a step taken only once before since the Great Depression, because of a political stalemate over the gap in the $100 billion annual budget. The bid to rewrite the spending plan for the year ending June 30, 2010, comes just five months after leaders agreed to raise taxes and slash spending in a bid to shore up the state’s finances amid the national recession.
“Moody’s believes that as the days and weeks go by without enacted solutions to the current cash crisis and the $26 billion budget gap, the risk to priority payments, and eventually debt service payments, is increasing,” Moody’s said in a statement. “The downgrade incorporates the risk we believe exists at the current time, as well as the state’s inability to solve the current difficulties in a timely fashion.” .............(more)
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