At least 7,000 top-rated municipal credits would have their ratings cut if the U.S. government loses its Aaa grade, Moody's Investors Service said.Now think about all the private entities that are affected by a default and/or a ratings downgrade, like pension funds and insurers. Then shudder.
An "automatic" downgrade affecting $130 billion in municipal debt directly linked to the U.S. would occur if the federal level is reduced, Moody's said yesterday in a report. Additionally, top-rated securities with no direct links to the national government will be reviewed for similar action.
Municipal debt including mortgage-backed bonds secured by the U.S. or agencies such as Fannie Mae and Freddie Mac, would be trimmed with the federal government, Moody's said. It didn't provide a total value for other state and local credits that may be affected, including housing authorities and nonprofits.
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