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It's all about creditworthiness

March 31, 2009

Re "Bond ratings ignore reality," Column, March 26

George Skelton misses some important points in his column about California's credit rating.

First, credit ratings are assessments of creditworthiness -- primarily, the likelihood of default. In general, Standard & Poor's ratings for municipal debt reflect the relatively strong credit quality of municipal issuers.

Although the likelihood that, for example, either Beverly Hills (rated AAA) or Stockton (A+) will default may be low, that does not mean that both municipalities deserve the same rating, nor that neither would ever default. Their credit profiles and economic fundamentals differ.

A rating system should reflect these differences to help investors make decisions. Even though the ultimate risk may be small, in our opinion, California is more at risk of default than higher-rated states.

Second, while it is true that historically California investors have purchased a high proportion of California debt, that is primarily because of the tax benefits.

Vickie Tillman

New York

The writer is executive vice president, Standard & Poor's Ratings Services.

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