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COMMENTS

Credit Trends: U.S. Public Finance Credit Quality Continues To Improve
COMMENTS

This Month In Credit: 2024 Data Companion

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Default, Transition, and Recovery: The U.S. Leveraged Loan Default Rate Is Set To Remain Near 1.5% Through June 2025

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Credit Trends: U.S. Corporate Bond Yields As Of Sept. 18, 2024

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Default, Transition, and Recovery: Monthly Defaulted Debt More Than Doubled To $14.9 Billion In August


Credit Trends: U.S. Public Finance Credit Quality Continues To Improve

Key Takeaways

  • U.S. public finance (USPF) credit quality improved in the second quarter of 2024, with 198 upgrades against 82 downgrades.
  • There were two defaults in the second quarter, the same number as in the first quarter.
  • Finances were the primary reason for rating actions, but it presented a mixed picture as improved finances lead to 116 upgrades, and deteriorating finances led to 42 downgrades.

USPF obligors' credit quality improved in the second quarter of 2024, with upgrades totaling 198 (186 nonhousing and 12 housing), up from 153 (149 nonhousing and four housing) in the prior quarter (see charts 1 and 2). Meanwhile, downgrades totaled 116 (114 nonhousing and two housing), up from 79 (76 nonhousing and three housing). There were 1.6 upgrades for every downgrade for nonhousing, down from two upgrades for every downgrade in the first quarter. Housing had six upgrades for every downgrade, up markedly from the 1.3 upgrades for every downgrade in the first quarter.

Chart 1

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Chart 2

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Fiscal Performance Drove 30% Of Total Downgrades And 32% Of Total Upgrades

In second-quarter 2024, eroded financial conditions were the most common reason for negative rating actions, totaling 42, while improved financial conditions were the most common reason for positive rating actions, totaling 116 (see chart 3). There was one state level rating action in the second quarter, with Alaska receiving an upgrade in April (see "Alaska" April 30, 2024), because of its financial stability and considerable budgetary surpluses over three consecutive fiscal years.

Chart 3

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There were two defaults in the second quarter when two education related obligors defaulted (see "Medaille University, NY Bond Rating Lowered to ‘D’ On Missed Interest Payments," April 16, 2024 and "Beech International LLC, PA Revenue Bond Rating Lowered To 'D' From 'CC' On Event Of Default," June 18 2024"). The two education related defaults, when added to the two housing issuer defaults, brings the year-to-date total to four, one higher than this time last year.

Rating Distributions

Only 1.8% of USPF nonhousing ratings were speculative-grade ('BB+' and below) at the end of the second quarter of 2024, up from the all-time low of 0.99% in 2011 (see table 1), and only 1.3% for housing, down from the all-time high of 3.6% at the start of 2021.

A large majority (nearly 86.7%) of USPF issuers were concentrated in the 'AA' or 'A' categories, as the ratings on these issuers strongly correlate with that on the sovereign, which S&P Global Ratings affirmed at 'AA+' with a stable outlook in March (see "U.S. 'AA+/A-1+' Sovereign Ratings Affirmed; Outlook Remains Stable," March 27, 2024). Excluding charter schools, the majority of issuers in all industries are concentrated in investment-grade rating categories.

Table 1

Rating distribution (as of June 30, 2024)
Number of ratings
USPF ex. Housing Tax Secured Appropriation Utilities Health Care Higher Education Transportation Charter Schools Housing
AAA 1,146 845 64 188 0 46 3 0 416
AA 9,140 5,479 2,337 944 108 192 80 0 1,725
A 9,347 5,963 1,742 965 198 315 163 1 169
BBB 1,099 416 76 154 91 189 23 150 58
BB 341 37 14 14 33 59 1 183 13
B 30 3 3 1 4 8 0 11 13
CCC/C 6 0 1 0 3 1 1 0 6
Totals 21,109 12,743 4,237 2,266 437 810 271 345 2,400
As percentage (%)
AAA 5.43 6.63 1.51 8.30 0.00 5.68 1.11 0.00 17.33
AA 43.30 43.00 55.16 41.66 24.71 23.70 29.52 0.00 71.88
A 44.28 46.79 41.11 42.59 45.31 38.89 60.15 0.29 7.04
BBB 5.21 3.26 1.79 6.80 20.82 23.33 8.49 43.48 2.42
BB 1.62 0.29 0.33 0.62 7.55 7.28 0.37 53.04 0.54
B 0.14 0.02 0.07 0.04 0.92 0.99 0.00 3.19 0.54
CCC/C 0.03 0.00 0.02 0.00 0.69 0.12 0.37 0.00 0.25
Data as of June 30, 2024. Source: S&P Global Ratings Credit Research & Insights.

Large Rating Movements Trended Slightly Negative

There were 41 large rating movements (those of two notches or more) in the second quarter, with 17 upgrades and 24 downgrades (see table 2). There were also nine obligors that moved from investment-grade to speculative-grade in the quarter, against only five that moved from speculative-grade to investment-grade (see table 3).

Table 2

Multiple notch rating changes, 2024Q2
Notch change* Notches Tax secured Housing Utilities Higher education Health care Appropriation Charter schools Grand total
3 3 1 1 2
2 2 7 6 1 1 15
-2 (2) 3 5 3 2 1 14
-3 (3) 2 1 2 1 1 1 8
-4 (4) 1 1 2
Total Grand total 14 8 7 6 4 1 1 41
Data as of June 30, 2024. *Negative numbers indicate downgrades. Q--Quarter. Source: S&P Global Ratings Credit Research & Insights.

Table 3

Fallen angels and rising stars for Q2 2024
Fallen Angels Rising Stars
Obligor Sector New rating New rating Rating date Reason Obligor Sector New rating New rating Rating date Reason

Palomar Health

 Health care BBB BB+ 4/2/2024 Operations Detroit (A) Tax secured BB+ BBB 4/10/2024 Finances

Palomar Health

 Health care BBB BB+ 4/2/2024 Operations

Detroit Downtown Development Authority

 Tax secured BB+ BBB 6/3/2024 Economy

Conemaugh Township Municipal Authority

 Utilities BBB BB+ 4/22/2024 Finances

Chisom Housing Group

 Housing BB+ BBB 6/4/2024 Debt service coverage

Mulga Town

 Utilities BBB BB+ 4/26/2024 Debt service coverage

Legacy Traditional Schools

 Charter schools BB+ BBB- 6/12/2024 Enrollment

Banning

 Utilities BBB BB 5/2/2024 Operations

CHF Collegiate Housing College Station I LLC

 Higher education BB+ BBB- 6/13/2024 Operations

Albion College

 Higher education BBB BB 5/16/2024 Liquidity

Southwest Public Power Agency Inc.

 Utilities BBB- BB 6/6/2024 Economy
Houghton College Higher education BBB- BB+ 6/14/2024 Operations

Public Preparatory Charter Schools Academies

 Charter schools BBB BB 6/27/2024 Debt
Q--Quarter.

Q2 2024 Rating Actions

As a percentage of all ratings by sector on April 1, 2024, transportation had the largest improvement in credit quality (see chart 4), with 4.4% of all transportation ratings raised. Conversely, health care had the largest percentage of ratings lowered, with just over 1.8% (see "U.S. Transportation Infrastructure Airport Update: Air Travel Rides the Jetstream, For Now " June 18, 2024, and "U.S. Not-For-Profit Health Care Covenant Violations Will Continue To Affect Pressured Issuers" April 29, 2024.)

Chart 4

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State and local governments

In the second quarter, there were 150 upgrades and 83 downgrades for state and local governments. Finances triggered 93 upgrades and 32 downgrades.

Chart 5

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Chart 6

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Chart 7

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Chart 8

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Chart 9

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Chart 10

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Appendix

Table 4

2024Q2 Upgrades and downgrades
Sector Upgrades Downgrades Defaulted
Total USPF ex. Housing 186 112 2
State and local* 150 53 0
Tax secured 103 47 0
Appropriation 47 6 0
Utilities 14 37 0
Health care 3 8 0
Higher education 6 13 2
Charter schools 1 1 0
Transportation 12 0 0
Housing 12 2 0
Data as of June 30, 2024. *Includes tax-secured and appropriation securities. Q--Quarter. Source: S&P Global Ratings Credit Research & insights.

Table 5

Upgrade/Downgrade# history
USPF ex. Housing Tax secured Appropriation Utilities Health care Higher education Transportation Charter schools@ Housing*
Up Down Up Down Up Down Up Down Up Down Up Down Up Down Up Down Up Down
1/1/2001 153 38 60 5 65 1 16 9 5 21 5 2 2 0 0 0 6 7
4/1/2001 740 106 84 3 628 67 23 4 1 20 3 12 1 0 0 0 38 11
7/1/2001 126 47 48 4 42 3 14 5 2 22 5 5 15 8 0 0 29 14
10/1/2001 99 14 54 3 21 4 11 2 3 4 7 1 3 0 0 0 25 8
1/1/2002 176 38 103 5 41 1 16 7 4 6 7 5 5 14 0 0 3 7
4/1/2002 108 105 59 9 21 64 20 6 1 11 1 5 6 10 0 0 3 25
7/1/2002 72 38 40 3 9 9 19 3 2 18 1 1 1 4 0 0 0 17
10/1/2002 103 127 58 13 25 72 12 15 4 19 2 7 2 1 0 0 6 18
1/1/2003 84 66 41 5 18 33 10 2 5 17 7 8 3 1 0 0 6 19
4/1/2003 87 46 52 10 6 1 13 1 5 21 6 7 5 5 0 1 4 24
7/1/2003 80 134 45 7 18 79 12 6 3 11 2 29 0 2 0 0 10 27
10/1/2003 126 92 57 14 25 28 17 7 11 30 16 8 0 5 0 0 24 9
1/1/2004 105 98 63 16 8 58 12 3 14 18 3 3 5 0 0 0 24 6
4/1/2004 97 66 53 11 17 34 16 8 8 9 2 3 1 1 0 0 2 11
7/1/2004 188 130 45 13 102 100 33 1 5 10 1 4 1 2 1 0 25 20
10/1/2004 122 58 65 11 22 21 19 9 9 14 6 3 1 0 0 0 11 10
1/1/2005 153 35 63 11 39 13 15 3 13 7 22 1 1 0 0 0 78 12
4/1/2005 109 66 53 10 25 42 8 2 16 10 4 2 3 0 0 0 5 110
7/1/2005 214 39 52 13 132 7 12 3 12 8 6 4 0 4 0 0 30 11
10/1/2005 153 109 74 42 24 23 23 9 20 18 10 8 2 7 0 2 13 42
1/1/2006 114 47 39 9 46 13 10 3 11 14 7 6 1 1 0 1 12 9
4/1/2006 251 22 67 10 144 1 15 2 13 6 9 3 3 0 0 0 30 8
7/1/2006 405 29 338 8 18 1 25 2 13 18 8 0 3 0 0 0 63 13
10/1/2006 194 38 98 14 37 4 22 6 12 10 13 3 12 0 0 1 34 3
1/1/2007 178 26 97 11 51 0 22 2 4 11 1 1 3 0 0 1 49 1
4/1/2007 178 56 73 27 63 11 24 2 9 9 8 5 1 2 0 0 9 4
7/1/2007 159 24 91 3 39 3 10 2 7 15 6 0 5 1 1 0 26 11
10/1/2007 165 49 76 13 31 8 26 1 10 19 15 4 4 1 3 3 12 10
1/1/2008 237 36 126 10 48 2 41 4 7 18 9 1 6 1 0 0 6 16
4/1/2008 634 31 417 6 104 3 97 1 5 20 9 0 1 1 1 0 7 63
7/1/2008 594 31 298 6 232 1 42 2 5 21 12 0 5 1 0 0 13 36
10/1/2008 668 44 293 7 58 4 298 0 7 28 5 4 6 1 1 0 31 30
1/1/2009 758 213 526 18 139 152 81 5 4 31 1 3 3 4 4 0 23 152
4/1/2009 615 83 335 15 111 42 151 1 5 22 6 3 7 0 0 0 26 77
7/1/2009 403 32 225 4 90 4 68 8 4 11 10 1 6 4 0 0 8 33
10/1/2009 453 60 314 12 77 28 34 1 13 12 12 3 1 4 2 0 9 32
1/1/2010 683 279 525 47 87 209 57 8 8 10 2 2 2 3 2 0 7 85
4/1/2010 577 93 439 54 79 16 42 3 8 16 6 2 1 2 2 0 11 42
7/1/2010 255 40 158 18 34 2 43 4 8 10 10 3 1 3 1 0 8 61
10/1/2010 238 59 150 27 16 16 30 3 19 7 17 1 4 4 2 1 33 72
1/1/2011 444 300 243 69 105 210 55 7 13 2 16 5 6 4 6 3 22 15
4/1/2011 189 96 100 60 33 16 24 6 22 9 2 3 7 1 1 1 5 40
7/1/2011 94 126 37 53 9 49 29 4 16 12 2 5 0 2 1 1 13 1312
10/1/2011 73 110 20 54 3 11 29 18 10 14 9 6 1 3 1 4 11 37
1/1/2012 126 91 44 39 24 23 43 12 11 11 2 4 2 0 0 2 8 59
4/1/2012 177 139 78 68 27 39 45 14 14 8 8 7 5 0 0 3 9 9
7/1/2012 140 150 65 79 28 39 27 8 14 12 2 6 3 0 1 6 3 40
10/1/2012 136 87 73 45 20 11 27 9 6 11 4 6 6 1 0 4 18 12
1/1/2013 200 128 83 88 85 15 19 11 9 6 4 3 0 1 0 4 12 12
4/1/2013 203 96 111 46 36 18 27 8 18 13 7 6 4 1 0 4 13 27
7/1/2013 274 119 161 49 72 19 24 16 7 10 5 10 5 3 0 12 10 14
10/1/2013 765 169 543 67 174 57 30 5 5 20 9 11 4 1 0 8 34 75
1/1/2014 680 164 518 80 111 40 17 17 13 10 7 8 12 1 2 8 10 4
4/1/2014 588 286 450 89 83 142 32 10 12 18 8 21 3 0 0 6 16 10
7/1/2014 737 369 467 94 231 227 24 9 10 14 4 10 1 0 0 15 35 8
10/1/2014 275 82 116 40 121 7 22 12 8 8 1 8 7 0 0 7 79 31
1/1/2015 234 161 141 70 36 43 27 7 24 18 3 17 2 0 1 6 23 4
4/1/2015 272 139 141 60 64 34 34 12 22 16 4 11 5 1 2 5 10 3
7/1/2015 318 156 137 52 112 56 34 24 20 3 3 12 11 2 1 7 23 2
10/1/2015 229 109 137 52 17 17 37 19 19 10 4 5 13 1 2 5 11 2
1/1/2016 266 138 143 57 39 32 46 22 8 6 21 15 7 1 2 5 19 18
4/1/2016 236 154 117 54 26 40 52 17 9 15 22 15 9 2 1 11 20 43
7/1/2016 204 156 99 44 50 67 33 14 13 7 6 15 2 1 1 8 11 3
10/1/2016 222 268 106 49 26 158 51 28 10 11 18 13 5 1 6 8 14 9
1/1/2017 250 273 137 77 41 129 52 27 8 12 4 12 5 0 3 16 12 24
4/1/2017 226 120 99 67 89 21 13 6 11 4 1 18 7 0 6 4 9 9
7/1/2017 157 153 90 52 25 58 20 16 5 14 8 4 4 2 5 7 12 5
10/1/2017 235 115 143 63 44 19 23 6 7 8 8 8 5 2 5 9 7 7
1/1/2018 551 97 341 53 172 7 21 8 8 8 3 10 0 2 6 9 3 32
4/1/2018 310 168 176 75 75 58 18 13 15 10 2 5 16 0 8 7 8 42
7/1/2018 275 144 132 83 88 9 25 22 5 14 3 10 19 2 3 4 29 13
10/1/2018 231 156 134 96 53 29 20 13 6 9 1 6 17 0 0 3 21 24
1/1/2019 284 106 181 63 52 19 32 10 6 6 5 5 8 0 0 3 0 11
4/1/2019 261 114 171 58 41 10 24 23 10 8 6 6 7 5 2 4 8 30
7/1/2019 199 107 121 62 37 14 29 12 3 5 7 7 0 0 2 7 2 71
10/1/2019 216 114 130 68 37 4 26 17 4 9 4 14 10 0 5 2 5 31
1/1/2020 111 106 58 53 21 8 20 17 6 9 3 16 2 1 1 2 21 7
4/1/2020 7 170 5 89 0 33 2 11 0 12 0 14 0 7 0 4 2 43
7/1/2020 13 246 6 103 1 24 5 16 0 7 0 23 0 71 1 2 15 83
10/1/2020 30 312 11 68 1 167 10 15 1 6 1 20 4 28 2 8 26 39
1/1/2021 51 79 24 28 2 15 15 14 0 7 0 12 9 3 1 0 18 9
4/1/2021 104 74 58 28 14 19 20 16 1 3 5 5 1 1 5 2 4 6
7/1/2021 204 70 116 35 57 9 18 16 6 7 2 2 0 0 5 1 10 18
10/1/2021 156 56 80 24 16 5 16 11 13 5 7 6 21 1 3 4 5 15
1/1/2022 304 50 105 22 161 4 15 14 3 4 4 6 14 0 2 0 2 8
4/1/2022 183 62 91 35 42 2 16 7 8 8 6 7 12 0 8 3 4 2
7/1/2022 170 75 88 35 12 4 35 16 3 10 1 6 29 2 2 2 12 12
10/1/2022 166 61 82 24 24 2 22 12 3 10 11 11 23 1 1 1 55 3
1/1/2023 133 51 67 18 24 0 5 8 4 13 7 9 20 0 6 3 52 4
4/1/2023 403 70 132 28 226 7 21 9 3 8 6 14 14 0 1 4 61 9
7/1/2023 166 55 96 25 24 6 18 4 2 16 19 2 4 0 3 2 14 1
10/1/2023 348 72 235 31 80 4 17 7 4 20 9 4 2 1 1 5 10 4
1/1/2024 149 76 88 31 30 5 11 16 3 10 5 6 9 0 3 8 4 3
4/1/2024 186 114 103 47 47 6 14 37 3 8 6 15 12 0 1 1 12 2
Data as of June 30, 2024. #Downgrades include defaults. '@All active charter school ratings are included in this category. Prior ratings often were categorized as appropriation debt. *Only tracked annually prior to 2006. Source: S&P Global Ratings Credit Research & Insights.

Related Research

This report does not constitute a rating action.

Credit Research & Insights:Nick W Kraemer, FRM, New York + 1 (212) 438 1698;
nick.kraemer@spglobal.com
Zev R Gurwitz, Albany + 1 (212) 438 7128;
zev.gurwitz@spglobal.com
Research Contributor:Lyndon Fernandes, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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