Nevada kept its gold-plated AA+ tax-exempt bond rating when it issued bonds earlier this year, but rating agencies are wary about the state of the state’s economy.
Moody’s Investors Service on Tuesday noted it had negative outlooks on six states, including Nevada, and sees deterioration in the financial strength of other states.
“While budget gaps opened first in states where once hot housing markets had cooled, such as Arizona, California, Florida, Nevada and Virginia, the broader economy has since weakened substantially and the financial distress is more widespread,” Moody’s said in a report.
Several states, including Nevada, plan to use reserves in the coming months, the report explained.
“Reliance on those funds in the short term may magnify the severity of the longer-term budget cuts,” Moody’s said.
Moody’s and Fitch Ratings put Nevada on negative outlook in May. Yet state Treasurer Kate Marshall said the negative outlook didn’t stop the state from having a strong response to its last general obligation bond issues in July. Nevada sold $305 million in general obligation, tax-exempt bonds with average maturity of 20 years and what she called “a very competitive” 4.5 percent rate.
Despite the negative outlook, Nevada still enjoys a AA+ bond rating or the equivalent from Standard & Poor’s, Moody’s and Fitch, she said. That’s one notch below the top AAA rating.
Similarly, Las Vegas, North Las Vegas, Henderson and the Clark County School District all have AA ratings or better, said Pat Zamora, vice president of NSB Public Finance, a subsidiary of Zions Bancorporation. Reno, another client, is rated A.
Moody’s said it doesn’t expect to make widespread changes in bond ratings for states. The bond rating service, however, said it “will make sharp rating distinctions among those issuers with the weakest intrinsic financial strength.”
Although municipal bonds have been pressured during the credit crunch, investors can get safe but relatively high yields in the municipal-bond market, said Jag Mehta, adjunct professor of finance at the University of Nevada, Las Vegas. The tax-free yields exceed taxable yields of Treasurys, he said. Buy bonds rated A+ or higher, he said, or consider a tax-exempt bond mutual fund, such as those from Vanguard Group.
Contact reporter John G. Edwards at email@example.com or 702-383-0420.