Moody's Investors Service has cut the long-term rating of 221 letter of credit (L/C)-backed municipal bond issues.

The ratings agency says it has downgraded the issues from various providers because of the way it rates debt.

Equal obligation

Specifically, Moody's has changed the way it rates debt jointly supported by the issuer and the L/C provider.

The ratings agency now judges that the issuer and the L/C provider are equally obliged to the principal and interest.

Limited impact

The new ratings approach does not, however, apply to all L/C-backed transactions.

So far, the new approach only applies to fewer than 18% of L/C-backed municipal issues.

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