KBRA Releases Report: Rating Ceilings Subvert Fundamental Municipal Credit Analysis

NEW YORK--()--In response to questions from many market participants about the use of ratings ceilings, Kroll Bond Rating Agency (KBRA) has issued a report addressing the topic. The report discusses the reasons that KBRA does not believe in formulaic rating caps for state and municipal credits.

KBRA believes that the purported “logic” of rating ceilings is faulty because it is predicated on events such as bankruptcy filings that are very unlikely to occur for the broad spectrum of municipal credits to which these ceilings apply.

It is our opinion that rules-based credit analysis is a disservice to the complex municipal market. We believe each credit requires an in-depth analysis of its legal, financial and structural merits, including a bankruptcy analysis.

KBRA may rate a properly structured special tax or enterprise revenue bond based on its individual credit features, which rating may be higher than the issuer’s corresponding general obligation credit rating. We make this determination by examining the pledged revenue stream’s legal and practical insulation from the municipality’s budget, as well as the ability of the pledged revenues to withstand economic stresses.

To view the report, please click here.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

KBRA
Analytical:
William Cox, Managing Director
646-731-2472
wcox@kbra.com
or
Karen Daly, Senior Managing Director
646-731-2347
kdaly@kbra.com

Contacts

KBRA
Analytical:
William Cox, Managing Director
646-731-2472
wcox@kbra.com
or
Karen Daly, Senior Managing Director
646-731-2347
kdaly@kbra.com