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Understanding Municipal Bond Ratings in Ohio: Impacts and Expectations

This presentation, given at the 2008 Ohio APT Conference by David J. Conley, Managing Director at Robert W. Baird & Co., delves into changes affecting municipal bond ratings. Covering factors like willingness to pay debt, creditworthiness, and the rating process, it explores the significance of ratings for states, counties, cities, and more. The talk highlights the reasons for issuers to seek ratings, the entities involved in providing ratings, and the potential outcomes of rating changes. It also discusses trends in credit markets and the implications of rating scale adjustments on interest rates and investor perceptions.

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Understanding Municipal Bond Ratings in Ohio: Impacts and Expectations

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  1. 2008 OHIO APT CONFERENCE Changes Affecting Municipal Bond Ratings Presented by: David J. Conley, Managing Director (888) 792-0039 Robert W. Baird & Co. October 8, 2008

  2. An issuer's willingness to pay debt • An issuer’s ability to pay debt • An issuer’s creditworthiness to pay debt • A rating is not a recommendation to buy, sell or hold a security • A rating is not an opinion on quality of life or the services provided What does a Rating measure? 1

  3. States • Counties • Cities • Villages • Townships • Schools • Others? Who receives a Rating? 2

  4. Obliged to do so (previously rated and the rating is still out) • To improve market acceptance (lower interest rates) • To get an independent assessment of your performance • Other reasons? Why do issuers get Ratings? 3

  5. Investors • Individuals • Administrators • Businesses Who uses Ratings? 4

  6. Moody’s Investors Service • Standard & Poor’s • Fitch Ratings Who gives the Ratings? 5

  7. Apply for a rating based on a new debt issuance • Manage an existing rating • Present to agencies in person, via phone or video conference • Agency publishes rating What is the Rating process? 6

  8. Municipal Bond Rating Scales 7

  9. Historical Ratings Distribution – Moody’s See Handout A, B, & C 8

  10. Average spread between grades: 0.25% Differences in Yield by Rating 9

  11. Credit markets are relying more heavily on underlying ratings • Significant downgrades of Bond Insurance companies • Law suits being filed against the agencies • Historical data supports making a change Why is there a change in the Rating scale? 10

  12. Many Ohio governments will see upgrades • The upgrades will likely range one to two rating grades • All three agencies believe changes will occur in a year • Moody’s will use a global scale rating in addition to the MSR • S&P will re-benchmark their MSR What type of change is likely? 11

  13. Higher ratings receive lower interest rates from investors • Markets may become complacent and view all debt the same • Investors will need to reassess how to measure credit quality • Potentially lessens the burden on taxpayers What will be the result? 12

  14. 2008 OHIO APT CONFERENCE Presented by: David J. Conley, Managing Director 1-800-792-0039 Robert W. Baird & Co. October 8, 2008 13

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