Kentucky issuer rating upgraded to Aa2 by Moody's

BY SourceMedia | CORPORATE | 09/19/24 02:43 PM EDT By Robert Slavin

Kentucky's issuer rating was upgraded to Aa2 from Aa3 and the outlook changed to stable from positive by Moody's Ratings.

The move follows upgrades by Fitch Ratings in May 2023 and by S&P Global Ratings in June 2023.

The agency upgraded to Aa3 from A1 $4.4 billion of general fund appropriation backed debt and to A1 from A2 $100 million of similar debt "with less essential projects." Moody's also raised $774 million of road fund appropriation-backed debt to Aa2 from Aa3.

Simultaneously, Moody's upgraded the Kentucky School District Enhancement Program and the Kentucky Public University Intercept Program to Aa3 from A1.

The agency rated Aa3 the Kentucky State Property and Buildings Commission's $448 million revenue bond expected to price Oct. 2.

"It's a really good day for Kentucky," Gov. Andy Beshear said Thursday. The upgrade was "a major validator of how the economy is booming like never before."

The upgrade will mean state taxpayer dollars will go further to pay for infrastructure, he said.

The years 2021 and 2022 were the best for economic development in the state, Beshear said, with 2023 the best tourism year.

"The issuer rating upgrade is driven by a sustained commitment to healthy reserves and structural balance, including continued adherence to high annual pension funding to pay down unfunded liabilities," Moody's said.

The upgrade reflects growth in key industries including its legacy manufacturing industry, electric vehicle manufacturing and growth in tourism and healthcare sectors.

The rating also stems from the state's strict adherence to strong pension funding over the last decade, the agency said.
Low educational attainment, income levels, and labor force participation continue to be challenges, Moody's said.

In a September 2023 report Kroll Ratings Agency affirmed the state's AA-minus general obligation rating and A-plus appropriation debt rating. It noted the government's operating surpluses and increased reserve funding in fiscal 2021 to 2023. It said the state has been making the recommended deposits for its pension system over several years.

However, the pension system's unfunded liabilities are substantial, KBRA said.

In April 2022 the individual income tax rate decreased and the sales tax base expanded. Initial revenue losses were greater than expected but the agency was optimistic the government would take responsible financial measures.

KBRA was concerned about the state's comparatively slow population growth.

S&P Global Ratings gives the state an A-plus issuer credit rating. For positives, it cited a sustained trend of structural balance, improved governance in last few years, a healthy budgetary reserve trust fund and solid economic trends. But large pension liabilities, a substantial percent of budget being spent on Medicaid, and weak demographics and labor force participation remain concerns, it said.

Fitch Ratings rates Kentucky AA and its appropriation debt AA-minus. It cites similar factors as the other rating agencies.

The state has no general obligation debt.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article