Much is at stake for public finance debt issuers that request credit ratings from Wall Street’s big credit rating agencies, which include S&P Global Ratings, Moody’s, Fitch Ratings, and Kroll Bond Rating Agency. Historically, many public finance issuers avoided credit rating agencies entirely by purchasing bond insurance, a strategy that fell off substantially after the insurers were downgraded during the financial crisis more than a decade ago. Although bond insurance has lately been making a comeback, it still represents a much smaller share of tax-exempt debt issuance than it did before the financial crisis. Similarly, direct placements with banks soared after the financial crisis, when low interest rates and lack of other lending opportunities made it attractive for banks to lend directly to municipalities. But the lower corporate tax rates established in the Tax Cuts and Jobs Act of 2017 have made tax-exempt debt less attractive to banks.
All this means that public finance issuers are finding themselves face to-face with credit rating agencies more often, and it can be a stressful and intimidating experience. Here’s the good news: Whether you are a new debt issuer dealing with credit rating agencies for the first time or you have long-standing established relationships with them, there are a few simple ways to maximize your rating agency relations, reduce the anxiety of the rating process, and maybe even get that long-wanted upgrade.