The change affects a class of bonds that have joint backing from borrowers and banks, says Naomi Richman, a managing director for Moody’s public finance group. Previously, Moody’s gave a four-notch “lift” to these jointly backed bonds, on the premise that two responsible parties were better than one. But under a new, more conservative methodology, the lift is just two notches now, she said.
However, Ms. Richman says this change in the long-term credit rating is likely to have minimal effect on the bonds, because they tend to be short-term issuances.
Moody’s uses the joint default analysis when the hospital as “obligor” and the bank as letter-of-credit provider are equally obligated to pay principal and interest when due and the provisions of the transaction document support this structure.
Learn more about Moody’s.
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