New York City Gets a Boost As Moody's Upgrades Debt
New York City, which has spent most of the past decade in the rating-agency doghouse, received a big boost as a major credit-rating company upgraded nearly $28 billion of city debt.</br></br>The upgrade to A3 from Baa1 by Moody's Investors Service Inc. was certainly good news for scores of investors who own city debt, either through mutual funds or by holding individual bonds. Both the current rating and the old one are "investment grade," but the one-notch upgrade could mean that more mutual funds and other institutional investors will buy city debt. Many institutions are restricted by their own rules in the amount of debt they can own in the B-rated category, where New York City had been.</br></br>Moody's action, which applied to the city's general-obligation bond, was the first upgrade for such bonds since 1988, during former Mayor Edward Koch's administration and just before the city entered a deep recession. In fact, less than three years ago Standard & Poor's Ratings Group, the other big ratings house, downgraded city bonds to BBB-plus from A-minus.</br></br>Market analysts said that city debt prices were largely unchanged by the news, but could improve in the days and weeks to come as more investors decide to buy New York debt again. Like Moody's, Standard & Poor's is seeing the city in a different light, and officials there said they are considering an upgrade of city bonds after New York releases its new budget.</br></br>Can investors sleep tight knowing the rating agencies are keeping close tabs on the city's fiscal health? If you own city debt, you may want to study up on the last time bond raters said the city's finances were improving. In November 1987, Standard & Poor's upgraded city bonds just weeks after the stock market's crash; the market's tailspin caused massive layoffs on Wall Street, a citywide recession and, eventually, lower bond prices. Market participants said S&P didn't anticipate then how seriously New York City would be hurt by the crash.