Massachusetts escapes cellar: S&P, Moody's upgrade bonds.

September 10, 1992, 1:00 a.m. EDT 5 Min Read

Standard & Poor's Corp. and Moody's Investors Service yesterday raised their ratings on the Commonwealth of Massachusetts' general obligation bonds several notches Wednesday, lifting the state from its status as the lowestrated state in the country.

Standard & Poor's raised the rating on Massachusetts general obligation debt and related guaranteed bonds to A from BBB, while Moody's upgraded the GOs from Baa to A. Both agencies cited the state's improved financial status, highlighted by significant spending cuts, asa impetus for. the upgrades.

The rating upgrade leaves New York GO debt at A-minus, as the lowest rated state by Standard & Poor's. Louisiana at Baa 1 is the lowest rated state by Moody's, which rates New York GOs A.

Officials at Fitch Investors Service, which rates Massachusetts A said it will not change the state's rating.

In upgrading Massachusetts' bonds, Standard & Poor's also removed the bonds from its CreditWatch list, where they had been placed with positive implications on March 10. Approximately $6 billion of general obligation debt and $2 billion of guaranteed agency debt is affected by the upgrade.

In addition, Standard & Poor's raised the ratings on about $425 million of Massachusetts notes to SP-1 from SP-2. It also affirmed an A rating on Massachusetts'gas tax revenue bonds.

At the time the bonds were placed on CreditWatch, Standard & Poor's indicated that an upgrade was likely if several conditions were satisfied, which included "balanced financial results for the 1992 fiscal year, a reasonable balanced 1993 budget, with reduced reliance on one-shot budget supports, and further reductions in short-term borrowing needs."

Richard Larkin, managing director of municipal finance at Standard & Poor's, yesterday cited the state's improved financial status as key to the upgrade. "It was a continuation of what we've been seeing for the last six to nine months. They seem to be moving along," Mr. Larkin said.

However while the state appears to be on the road to recovery, it still must overcome some stumbling blocks, he added.

"The economy is still a drag, but we feel more confident about their ability to deal with the problems," Mr. Larkin added, noting that the state is not expected to resort to deficit financing to finance operations as it has in the past.

Moody's, in raising the rating on the bonds, pointed to the state's "application of conservative revenue assumptions and efforts to impose spending discipline" as having reduced the state's "financial vulnerability and restored fiscal control."

Moody's officials also pointed to continued challenges ahead for the state.

"The ability to deal with their financial problems has brought them back from the brink but this is a rating that is not likely to be changed soon," said Steven Hochman, vice president and assistant director of state ratings at Moody's.

The rating actions comes on the heels of meetings held between Massachusetts officials and those of the three rating agencies in late August. Rating officials said upgrades were possible because the meetings provided them with the first detailed information on preliminary fiscal 1992 results as well as preliminary a fiscal 1993 outlook. The state's 1993 fiscal year began July 1.

Despite ratings officials apprehensions about the state's future, Massachusetts officials were uplifted by the ratings news.

"I sent a bottle of champagne to the governor's office. It's the culmination of a lot of hard work." Massachusetts Treasurer Joseph Malone said of the upgrades.

"There's nothing worse than having the lowest bond rating in America," Mr. Malone added, after news of the Standard & Poor's rating was released.

"We thought the state was worthy of an upgrade. Over the last 20 months, the state has,shown a willingness to live within its means." he added, lauding Gov. Weld for spending cuts that aided the upgrades.

Massachusetts officials are optimistic the upgrade will translate into better yields when the state brings about $350 million of refunding bonds to market in early October. Information was not available on whether the negotiated offering will be a general obligation or revenue bond offering, Mr. Malone said.

"We think the marketplace is going to respond very favorably," Mr. Malone said, but he declined to speculate on how much yields could be lowered on the upcoming sale.

In municipal market action, uninsured Massachusetts GOs showed little reaction to the upgrade, as secondary traders noted that the upgrade was already priced into the price of outstanding bonds.

In late secondary trading. Massachusetts 6s of 2012 were said to have traded right around 98 3/8 to yield approximately 6.14%.

"I think people are surprised it got the solid A rather than A-minus," said Jim Bosland, fund manager at the private bank, a division of the Bank of Boston. "To go from BBB to A was a nice little bonus, but the market was already trading them as though they were single-A bonds. " ,

The upgrades also should increase demand for Massachusetts paper, Mr. Bosland said. He pointed out that A ratings now make the bonds available for purchase by bank trust departments, many of whom could not purchase the bonds when the rating were lower.

Massachusetts GOs were upgraded to AA-plus by Standard & Poor's on Feb. 9, 1988. The bonds were then downgraded to AA on May 17. 1989, and later lowered to AA-minus on June 27, 1989. The bonds were downgraded to A on July 14, 1989, and then to BBB on Dec. 13. The rating was affirmed on March 10 of this year.

The GOs attained a high rating of AA from Moody's on Feb. 9, 1988. They were first downgraded to Baa 1 on June 2l, 1989. That rating was lowered Baa on March 19, 1990. The rating was affirmed on Dec. 6 1991.

Massachusetts Rating History

Standard & Poor's Corp.

Upgraded to AA-plus: Feb. 9,1988

Downgraded to AA: May 17,1989

Downgraded to AA-minus: June 27, 1989

Downgraded to A: July 14, 1989

Downgraded to BBB: Dec. 13,1989

Affirmed at BBB: March 10, 1992

Upgraded to A: Sept. 9, 1992 Moody's Investors Service

Upgraded to Aa: Feb. 9, 1988

Affirmed at Aa: April 4,1989

Downgraded to Baa 1: June 21, 1989