Municipal upgrades outpaced downgrades in the second quarter of this year, the first time since the first quarter of 1989, according to a report in the latest edition of Standard & Poor's Corp.'s CreditWeek Municipal.

Municipal credit quality improved in the second quarter of 1992, marked by a steep drop in the number of downgrades from the first three months of the year, the agency said.

Based on preliminary figures, ratings on $7.2 billion of debt were raised and only $800 million were lowered in the second quarter. In the first quarter, $6.1 billion of debt was upgraded and $20.5 billion was downgraded.

Unlike the first quarter, the number of second quarter rating changes was consistent with dollar volume data: 50 ratings were lowered and 92 were raised.

In the first quarter, 145 ratings were lowered and 150 raised. This compares with $1 billion raised and $11 billion downgraded in the first quarter.

The agency said general obligation debt showed some strength, with $1.6 billion upgraded and $200 million lowered, but that municipal utilities accounted for the bulk of the upgrades. None of the utility credits were downgraded during this period, and the ratings on 66 issues totaling $5.5 billion were raised. Housing and health-care debt each had $300 million of debt downgraded.

In the first quarter, $700 million of housing debt and $500 million of health-care debt were downgraded. No housing issues were upgraded in this quarter, compared with $100 million in the first quarter.

In health care, less than $50 million of debt was upgraded, down from $500 million, Standard & Poor's said.

Commenting on the report, Vickie Tillman, executive managing director of Standard & Poor's municipal finance department, said in a statement, "While the numbers clearly provide some positive news for the municipal market, it's to soon to conclude that this is a permanent trend."

She noted that much of the upgrade activity was the result of two sizable municipal utility upgrades: the National Rural Utilities Cooperative Finance Corp. and the Sacramento Municipal Utility District, Calif.

"Some cities and states have effectively readjusted their fiscal policies," Ms. Tillman, but added, "others still face sizable budget challenges."

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