If the long-term credit rating of the U.S. is downgraded, Missouri is listed among around a dozen states that will be first in line to receive a review by Moody’s Investors Service, according to a report by a leading brokerage.
Moody’s, which placed the U.S. AAA rating on review for a possible downgrade last week, is likely to focus its efforts on government entities with AAA ratings, writes Joshua Zeitz, a research analyst at MF Global.
“Although it would seem logical that the agency will also review the credit of less-rated states, ironically, states with the strongest credit ratings seem first on the possible review list,” Zeitz writes in a report covering unintended consequences of the debt ceiling debate.
In addition to placing the U.S. debt under review, Moody’s also placed on review approximately 7,000 AAA-rated municipal issuances with direct links, Zeitz writes. ”Over the next two weeks, Moody’s will likely place on review for downgrade thousands of additional AAA-rated muni issuances with indirect links to federal debt and liquidity.”
Moody’s considers the probability of a default on interest payments by the U.S. to be low, according to a statement released last week. “An actual default, regardless of duration, would fundamentally alter Moody’s assessment of the timeliness of future payments, and a AAA rating would likely no longer be appropriate.”
The credit rating agency Standard & Poor’s placed the U.S.’s long-term AAA credit rating on “CreditWatch with negative implications” last week, adding that there is a 50 percent chance the rating agency could downgrade the long-term credit rating on the U.S. within the next 90 days, according to a statement released by S&P.
A downgrade of the state’s debt would be an overreaction at this time, said Howard Wall, director of the Institute for the Study of Economics and the Environment at Lindenwood University. ”There are a number of scenarios that can play out and it all depends on the probabilities that one assigns to them,” he told Missouri Watchdog.