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MOODY'S COMMENTS ON 1992 MUNICIPAL VOLUME AND RATING TRENDS

 NEW YORK, Jan. 13 /PRNewswire/ -- Moody's Investor Service announced today the results of municipal bond rating activity for 1992. The record level of both long- and short-term municipal debt activity in 1992 led to what the agency is reporting as a record high level of ratings assigned in any year since Moody's began assigning ratings to municipal debt in 1918. Specifically, the agency reported assigning over 13,500 municipal ratings in 1992.
 According to Daniel Heimowitz, executive vice president and director of Moody's Public Finance Department, 1992 was characterized by many of the same trends Moody's identified in 1991. In addition to heavy new issue volume, the year was distinguished by an accelerated trend of refinancings. "In 1992, we saw a great many issuers take advantage of favorable interest rates to refinance debt. From a credit perspective, these refinancings had the general effect of providing debt service savings. The benefit of refinancing has to be determined in an individual basis, however," he noted, "because many refundings were structured to realize near-term debt service relief. As a result, some issuers will see debt service costs increase one the long-term to a level equal to or greater than those that existed before refinancing."
 Among the trends that continue from last year is the acceleration of capital spending by some issuers to counter the effects of the sluggish economy, and the issuance of debt in place of what would otherwise have been "pay-as-you-go" financings. Moody's noted that while there has been heightened public attention to the subject of infrastructure, there is not yet a clear commitment to increase spending for infrastructure.
 Mr. Heimowitz noted that in 1992, financial pressures were intensive, a condition which he said was the most dramatically evident in the number of downgrades to state debt. The rating on the appropriations-backed debt of the state of New York was lowered in January. (The state's general obligation rating was not revised.) California's general obligation debt was downgraded twice during the year, and the G.O. debt of Illinois, New Jersey and Rhode Island was all downgraded in 1992.
 According to Mr. Heimowitz, state budget officials have been struggling with the structural imbalance between slower revenues and burgeoning expenditure demands, particularly in education and health care. He noted that in preparing their fiscal year 1993 budgets, states were generally more realistic regarding revenue growth than the prior year. Looking forward to fiscal year 1994, however, the financial picture for states remains tentative. The willingness of officials to make difficult budget choices, a factor in all of Moody's rating decisions, will continue to be a focus of attention with regard to state credit ratings.
 Mr. Heimowitz said, "State governments over the last three years have experienced an unprecedented period of difficulty, as evident at the end of fiscal 1992 in the lowest level of cash balances that we have seen since World
War II. Essentially, many states had no surplus cushion going into this fiscal year. Economic forecasts predict slow growth in 1993 and beyond and, as a result, states will not grow their way out of the current fiscal strain. The future credit quality of states will ultimately rest on their ability to impose budget discipline while operating within available resources. To the extent that states download responsibility to local governments as a remedy for their own budget pressures, additional pressure will be placed on the credit quality of local governments."
 Like the states, many local issuers are confronting both revenue shortfalls and the pressures of demand-driven expenditures, particularly in the areas of
public safety, welfare, and health care. Most local governments are capable of weathering these challenges, but some others continue to resort to one-shot measures, including debt restructurings and deficit financings.
 This search for near-term relief was evident throughout the country, by highly rated credits as well as below-average credits. Among the more prominent entities that sought budget relief in 1992 with deficit fundings or debt restructurings were Houston; Detroit; Nassau County, N.Y.; New Haven, Conn.; New Orleans, and Washington, D.C.
 Long-Term Ratings
 Moody's reports assigning 8,555 ratings to long term, unenhanced debt issues in 1992 compared with over 7,800 ratings for 1991 and 6,600 for 1990. (Unenhanced ratings are those not based on the presence of an insurance policy or any other type of credit-support vehicle.) The agency estimates that it rated nearly $154 billion in new long-term unenhanced debt in 1992. Of the 8,555 ratings assigned to long-term debt, 85 percent were confirmations of previously assigned ratings, 10 percent were ratings on the debt of issuers that previously had never been assigned a rating, and 5 percent were revisions of previously assigned ratings.
 Moody's notes that the acceleration of capital spending by some issuers to counter the effects of the slow economy included substantial financings by some states and localities to promote economic development. Examples of such projects are the Supercollider project south of Dallas; the United Airlines aircraft maintenance facility at Indianapolis Airport, Ind.; aircraft facilities for Northwest Airlines at Duluth Airport and Hibbing-Chisholm Airport, Minneapolis; and a Federal Express aircraft hanger and maintenance facility at Anchorage International Airport, Alaska.
 Rating Revisions
 In 1992, 398 ratings were revised -- approximately 5 percent of all long-term, unenhanced ratings assigned during that time -- affecting over $75 billion of debt. Of the revised ratings, 209 were upgrades and 189 were downgrades.
 The ratio of upgrades to downgrades on general obligation and other tax-supported debt was somewhat unfavorable at 4:5, with 121 upgrades and 145 downgrades. Revenue-supported bonds had a far more favorable ratio of 2:1, with 88 upgrades and 44 downgrades.
 This generally positive performance by revenue bonds continues a two- to three-year trend that is particularly striking in terms of debt affected. In 1992, $12 billion of debt was affected by revenue bond upgrades, in contrast to $2.9 billion affected by revenue bond downgrades. In 1991, $19.4 billion of revenue debt was affected by upgrades, and $1.5 billion by downgrades. The only revenue bond sector in which rating revisions are negative is health care, which had roughly twice as many downgrades as upgrades in 1992.
 Mr. Heimowitz noted that the number of ratings revised in 1992 was consistent with recent rating experience. One reason for the relatively small number of revisions to municipal bond ratings, he commented, is that despite budgetary stresses, most issuers continue to operate in a sound, responsible manner.
 Mr. Heimowitz went on to say that with the apparent end of the national recession, Moody's is looking for municipal credits to shore up their financial strength with actions such as rebuilding reserves and reducing the use of one-shots. Fiscal strengthening will be difficult for many issuers, however, given the forecasts of slow growth and continuing expenditure pressures, particularly for those municipal credits that will begin to feel the budget impact of earlier one-shot cost deferrals and the repayment of deficit borrowings.
 Another area of concern is that of labor market conditions and the continued downsizing by major firms such as General Motors and IBM. Some communities will continue to experience significant pressure on municipal revenues as a result of these cutbacks. In some instances, that pressure is likely to reduce or eliminate the benefits of the growing national economy.
 Short-Term Ratings
 The number of note ratings assigned by Moody's Public Finance Department in 1992 continues the trend established in 1991. During 1992, Moody's assigned 458 short-term municipal note ratings, compared with 451 ratings in 1991. In 1990, 326 short-term ratings were assigned.
 The high level of short-term activity over the last two years reflects increased budgetary constraints and less internal liquidity to bridge cash gaps. A development of note is that, in fiscal 1992, 15 states borrowed externally in short-term markets because of declining cash balances. The state of California was prominent in the short-term market last year, borrowing $5 billion in September as a result of its budget impasse.
 Credit-Enhanced Ratings
 The appeal of bond insurance for municipal issuers continued in 1992, for the dual objectives of greater market acceptance and decreased debt service costs. In 1992, Moody's rated 2,890 insured issues, which represented approximately $74.3 billion, in contrast to the 2,500 insured issues representing approximately $50.4 billion that were rated in 1991.
 Approximately one-third of the new issue long-term market rated by Moody's was insured. Once again, individual investors played a major role in the growth in the insured market, by demanding highly rated municipal securities, primarily through bond funds.
 The volume of letter-of-credit (LOC)-backed debt continued to decrease significantly in 1992. Two years ago, in 1990, Moody's rated 260 debt instruments backed by bank LOCs. That number dropped to 198 for 1991 and to 152 issues for 1992.
 One of the major reasons for the decrease in LOC-backed volume has been the overall decline in variable rate volume, since most LOCs are for variable-rate instruments. The lower credit quality of U.S. and foreign banks continued to play a part in 1992s lower volume, as did stricter credit criteria by the banks providing LOCs, and a decreased issuing capacity as a result of stricter capital requirements. Many borrowers, particularly hospitals and universities, are using standby bond purchase agreements, lines of credit, or their own internal funds to replace expired LOCs or for credit enhancement at the time of sale.
 There was significant activity in derivative products again in 1992, as issuers continued to prefer fixed-rate debt and investors sought short-term paper. Although Moody's is not seeing the explosive new issue growth that was evident in 1991, derivative volume in the secondary market continues to be significant.
 By the end of the fourth quarter, Moody's had rated 121 issues totaling in excess of $2.7 billion compared to 123 issues totaling $2.7 billion in 1991. The number of ratings assigned to issues utilizing standby bond purchase agreements, custodial receipts, and municipal strips remained high in 1992.
 -0- 1/13/93
 /CONTACT: Daniel Heimowitz, 212-553-0340, or William deSante, 212-553-0353, or George Leung, 212-553-0342, or Jeffrey Rizzo, 212-553-0354, all of Moody's/


CO: Moody's Investors Service ST: New York IN: FIN SU: ECO

LR-SC -- NY026 -- 4435 01/13/93 13:22 EST
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Date:Jan 13, 1993
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