Bank rating downgrades in the US could hurt municipal debt backed by letters of credit (L/Cs) and other facilities, according to Moody's Investors Services.

The ratings agency says that downgrades would reduce the number of banks in the market for issuing L/Cs.

Review process

Moody's is reviewing the ratings of several banks and securities firms, including Bank of America, Morgan Stanley and Citigroup.

The ratings agency is mulling downgrades for all of the banks in a review process likely to end this May.

Credit lines

The banks have traditionally supported variable-rate demand bonds and other municipal securities where the interest rates are reset.

Typically, L/Cs and some other facilities act as lines of credit during remarketing.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.