Market Overview

KBRA Releases Report: Rating Ceilings Subvert Fundamental Municipal Credit Analysis

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In response to questions from many market participants about the use of
ratings ceilings, Kroll Bond Rating Agency (KBRA) has issued a report
addressing the topic. The report discusses the reasons that KBRA does
not believe in formulaic rating caps for state and municipal credits.

KBRA believes that the purported "logic" of rating ceilings is faulty
because it is predicated on events such as bankruptcy filings that are
very unlikely to occur for the broad spectrum of municipal credits to
which these ceilings apply.

It is our opinion that rules-based credit analysis is a disservice to
the complex municipal market. We believe each credit requires an
in-depth analysis of its legal, financial and structural merits,
including a bankruptcy analysis.

KBRA may rate a properly structured special tax or enterprise revenue
bond based on its individual credit features, which rating may be higher
than the issuer's corresponding general obligation credit rating. We
make this determination by examining the pledged revenue stream's legal and
practical insulation from the municipality's budget, as well as the
ability of the pledged revenues to withstand economic stresses.

To view the report, please click here.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S.
Securities and Exchange Commission as an NRSRO. In addition, KBRA is
recognized by the National Association of Insurance Commissioners as a
Credit Rating Provider and a certified Credit Rating Agency (CRA) by the
European Securities and Markets Authority (ESMA). Kroll Bond Rating
Agency Europe Limited is registered with ESMA as a CRA.

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