NEW YORK, Oct 28 (Reuters) - Ratings agencies Moody's andFitch both expect downgrades to U.S. public finance ratings tocontinue to outpace upgrades in the next quarter, reflectingweakness among many issuers despite the gradually improvingeconomy.
For both rating agencies, downgrades outpaced upgrades inthe third quarter of year, though the ratio of downgrades toupgrades moderated.
"Despite broader economic improvement, there are stillpockets of concentrated credit pressure," Moody's InvestorServices said on Monday. "As a result, we expect downgrades tocontinue outpace upgrades through the end of 2013 across mostsectors."
Moody's said it issued 182 downgrades in the third quarter,versus 53 upgrades, representing a small sequential improvementover the previous two quarters.
Fitch Ratings downgraded 39 credits during the third quarterand said the number of downgrades exceeded upgrades by a ratio1.7 to 1, compared with a ratio of 2.8 to 1 in the previousquarter.
"Negative actions are expected to remain elevated, asnegative rating outlooks exceeded positive rating outlooks,"Fitch said. "However, the ratio of negative outlooks to positiveoutlooks has been slowly decreasing for the last eight quartersand is at its lowest level since the third quarter of 2009."
Ratings agencies have different methodologies for ratingdebt, and the number and type of issuers they cover can alsovary. As a result, the big three agencies do not necessarilyprovide a like-for-like comparison.
In contrast to Fitch and Moody's, Standard & Poor's RatingsServices issued more upgrades than downgrades in the thirdquarter. It said it expected that trend to continue, but thatthe number upgrades to downgrades could ease due to headwinds,such as federal government spending cuts and dysfunction inWashington.
Standard & Poor's said the increase in upgrades partlyreflected a revision of its ratings criteria. In September, theagency released changes to its criteria for assessing localgovernments. It said at the time that it expected the ratingsfor 30 percent of the 4,000 it evaluates to rise as a result.
Standard & Poor's said it made 2.81 upgrades for eachdowngrade in the third quarter, compared with a ratio of 2.05 to1 in the second quarter. The number excludes the housing sector.
The agency noted that there have been 14 defaults so farthis year, the highest since it started tracking defaults in1986. It said the elevated number of defaults reflected awidening of the gap between strong and weak credits, but saidthe number was "inconsequential from a statistical standpoint."
- Security Upgrades & Downgrades
- Fitch Ratings