DENVER -- Moody's Investors Service late Thursday raised New Mexico's bond rating to Aal from Aa, citing the state's economic growth and diversity.
Moody's said New Mexico has rebounded from a slump induced by falling energy prices in the 1980s to show "a consistent trend of stable financial operations and strong fund balance levels."
The upgrade covers $140 million of outstanding general obligation debt. New Mexico is scheduled to sell competitively $92 million of severance tax bonds on July 12. State officials said they hope the higher rating helps lower the interest cost of the new issue.
"This is another sign of how well we are doing in New Mexico in comparison with other states," New Mexico Gov. Bruce King said in a prepared statement.
In addition to the upcoming severance tax issue, the other reason for the timing of the upgrade was the realization in recent months that New Mexico's economic health was more than a mere counterpoint to the sputtering economies on both coasts, said Moody's analyst Renee Boicourt.
For the past five years, the economies of the Rocky Mountain states have outperformed the nation's economy, but much of that was attributed to economic slowdowns in California and on the East Coast.
"It was hard to get a read on what was going on in New Mexico in 1991-1993 when it was outperforming the nation. In part it was because the coasts were doing so badly. We were reluctant to draw a conclusion from that," Boicourt said.
Now that the rest of the nation is recovering and New Mexico is still growing fast, it shows that the state has put its boom-and-bust economy behind it, she said.
Boicourt points to the state's shift away from relying on mineral severance taxes as a source of revenue. The state has increased sales and use and personal income taxes, which range up to 8.5%, to lessen dependence on mineral taxes.
In addition, Boicourt points to the state's increased semiconductor design and manufacturing capability and a solid research and high technology base centered around the University of New Mexico in Albuquerque.
"It's the same thing that's going on in all the Rocky Mountain states," said Brian McMahon, portfolio manager of the $130 million Thornburg New Mexico Intermediate Municipal bond fund.
"People are moving in. Property values are moving up. Various service businesses are setting up shop. The bottom line for all the Rocky Mountain states is that they are just nice places to live," McMahon said.
"You can just feel the vibrancy," said Andrew McCullagh, manager of the $26 million Voyageur New Mexico Tax-Free fund. Because of the New Mexico upgrade, "a lot of our credits will be looked at more positively. It bodes well for our portfolio," McCullagh said.
However, both McMahon and McCullagh hedged when asked if they would buy part of the upcoming severance tax issue, saying it would depend on rates and maturities. Rising interest rates are slowing the growth of the funds, making new issues less attractive.
Standard & Poor's Corp. rates New Mexico general obligation debt AA-plus.
