Credit downgrades outpaced upgrades in the 1st quarter of 2021, according to a new Fitch note, with the agency downgrading 32 public bonds and upgrading only 14.
Still, municipal governments maintained relative stability, according to Fitch analysis.
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Despite the increase in negative rating activity in 2020, the sector maintained overall credit stability amid the ongoing coronavirus pandemic. Fitch has affirmed ratings and maintained Stable Outlooks for the vast majority of its rated municipalities with upgrades representing roughly 1.6% of 1Q21 rating actions, and downgrades represented approximately 3.6%. “Substantial direct federal aid under the ARP, including $350 billion for state and local governments, could support stabilization of some Negative Outlooks if states utilize the receipts to restore fiscal resilience,” said Arlene Bohner, Fitch’s head of U.S. Public Finance.
Municipalities will continue to endure coronavirus-related pressures this year. The inadequacy of current infrastructure funding remains a concern despite ongoing efforts from states to address the challenges and recent and potential federal action. Medicaid also remains an ongoing budgetary pressure point for all states. That said, “most municipalities will be able to maintain their credit quality,” said Bohner.