THE IMPACT OF RECALIBRATION ON CREDIT RATINGS: THE ASYMMETRIC TREATMENT ACROSS TYPES AND SIZES OF LOCAL GOVERNMENT IN THE U.S.

Julie Anna Golebiewski
George Palumbo
Mark P. Zaporowski
Canisius College

ABSTRACT

Following years of criticism that credit rating agencies had undervalued the credit-
worthiness of local governments, Moody’s and other agencies recalibrated their ratings from a
relative to a global scale. The rescaling affected the credit ratings of most local governments, but
little attention has been paid to the distributional implications of this rating revision. This study
employs Moody’s municipal bond data to analyze rating changes with special emphasis on the
size and type of government. It reveals a non-uniform distribution of rating changes. This finding
suggests that the recalibration of ratings may not have been yield neutral, as Moody’s suggested.

Keywords: Recalibration, credit rating, rating revision, Moody’s municipal bond data, size and type of local
government,