State Treasurer: Rating Downgrade Won't Hurt Nevada

A downgrade of a major insurer of bonds to "junk" status, which could cost some banks and local governments billions of dollars, shouldn't harm Nevada and its ability to sell bonds, Treasurer Kate Marshall said Wednesday.

Standard & Poor's slashed its credit rating for bond insurer ACA Financial Guaranty Corp. to a non-investment grade "CCC" from investment grade "A."

The credit-rating agency cited concerns about increasing claims from defaults on mortgage-backed bonds, and the risk that those claims could drain the bond insurers of needed capital.

The downgrade led S&P to cut ratings on bonds issued to fund everything from schools to sewers and prisons to parks.

Marshall said Nevada is safe because its bonds typically aren't insured given the state's AA-Plus rating, just one notch below the top AAA ratings given by Moody's Investors Service.

The treasurer's latest annual report lists nearly $3 billion in bonded debt.

In most cases "we won't buy insurance because we won't need it.

We're strong enough as we are now. We're OK," Marshall said, adding that Moody's just reaffirmed Nevada's rating even though it's among states that have been hit hard by the subprime mortgage debacle.

"If you look at the extent of the foreclosures, if you look at the economic slowdown which is of course worrisome, when you have
an economy that largely rests on a couple of industries, for Moody's to say, 'Your rating stays in place, we think that that you are still AA-Plus, you're a strong state, you have a lot of growth, you have a lot of potential,' that tells you that nobody is worried about Nevada," the treasurer said.

S&P, in downgrading ACA, also placed warnings on four other insurers.

The agency acknowledged its actions could change the way bond insurers do business from now on.

The new strain on civic funding comes at the same time that a weak housing market threatens to drain local coffers of property taxes.

In cases where a municipality provided its rating as the backstop for a bond insured by ACA, S&P cut the bond's ratings to match those of the municipality.

Ratings for bonds ACA insured, but which were not backed by a municipality's underlying rating, fell to "CCC" to match ACA's rating.

Bonds cut to "CCC" because there is no other underlying rating can be resubmitted for review, S&P said.

In that case, a municipality could potentially have the bond upgraded to match its credit rating.