Moody's Puts 5 States On Notice

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Apparently Maryland, South Carolina, New Mexico, Tennessee and Virginia should be preemptively quaking in their boots.

Five of the 15 states with top bond ratings from Moody’s Investors Service may be downgraded because their dependence on federal revenue makes them vulnerable to a U.S. credit cut should talks to raise the debt limit fail. Maryland, South Carolina, New Mexico, Tennessee and Virginia are under review, New York-based Moody’s said today. The action affects $24 billion of general-obligation and related debt, it said. The states are rated Aaa, Moody’s top municipal grade.

The credit evaluator said on July 13 it may cut the federal government’s Aaa rating as congressional Republicans and President Barack Obama’s administration failed to agree on raising the U.S. debt limit. Moody’s said the next day it would scrutinize top-rated states, municipalities, housing programs and other debt issuers. “Should the U.S. government’s rating be downgraded to Aa1 or lower, these five states’ ratings would likely be downgraded as well,” Moody’s said today. Any change in the state ratings would be announced seven to 10 days after action on the U.S., it said.

[Bloomberg]

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