Question

How do credit analysts assist decision makers in evaluating the credit worthiness of a state or local government?

Answer 1

(Q) How do credit analysts assist decision makers in evaluating the creditworthiness of a state or local government?

(Ans) Local government-owned companies play a key role in serving domestic population, in performing the statutory tasks of local governments, as they are responsible for public duties locally. As far as rating is concerned local government-owned companies have special characteristics because they can borrow from banks subject to restriction and a government licence.The creditworthiness of a local government measures both quantitatively and qualitatively its ability to repay debt. The depth of such analysis differs across financial institutions, depending on the degree of specialization and knowledge on/ of the local governments' segment. Credit analysis has a crucial function in the debt capital markets for efficiently allocating capital by properly assessing credit risk, pricing it accordingly, and repricing it as risks change. Credit analysts, such as those with Moody's, Standard and Poor's, and Fitch, Inc., analyze external financial statements of a government along with other available economic and demographic information, make initial assessments, compare municipalities, and then assign a bond rating to each bond a government issues. Investors considering the purchase or sale of municipal bonds use this rating to compare the risk associated with each bond relative to other municipal bonds. These credit rating agencies play a central role in the credit markets. Nearly every bond issued in the broad debt markets carries credit ratings, which are opinions about a bond issue’s creditworthiness. Credit ratings enable investors to compare the credit risk of debt issues and issuers within a given industry, across industries, and across geographic markets.