Ratings Agencies Still Stick AAA Seal Of Approval On Municipal Debt From Cities The Ocean Will Drown
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"One of the first questions that were going to ask when confronted with an issuer along the coast of Texas, or on the coast of Florida, is: How are you going about addressing, mitigating the impacts of climate change?" Glass, Alliance Bernstein, said. And if local officials dont have a good answer to that question, he added, "We will not invest, period." When asked by Bloomberg, none of the big three bond raters could cite an example of climate risk affecting the rating of a citys bonds.
Kurt Forsgren, a managing director at S&P, said its municipal ratings remain "largely driven by financial performance." He said the company was looking for ways to account for climate change in ratings, including through a citys ability to access insurance. Henry Shilling, Moodys senior vice president for environment, social and governance risks, said the company is planning to issue a report this summer that explains how it will incorporate climate change into its municipal ratings. "Its a bit of a journey," he said.
Last September, when Hilton Head Island in South Carolina issued bonds that mature over 20 years, Moodys gave the debt a triple-A rating. In January 2016, all three major bond companies gave triple-A ratings to long-term bonds issued by the city of Virginia Beach, which the U.S. Navy has said faces severe threats from climate change.
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As an example, he cited the case of Homestead, a city south of Miami that bore the worst damage from Hurricane Andrew in 1992. The citys largest employer, Homestead Air Force Base, was destroyed in the storm; rather than rebuild it, the federal government decided to include the facility in its base closures.
Fugate said climate change increases the risk that something similar could happen to other places along the coast -- and they wont ever be able to bounce back as Homestead eventually did. "If that tax base does not come back," he warned, "they cannot service their debt." Asked about rating companies insistence that such risks are remote, Fugate scoffed. "Werent these the same people telling us that the subprime mortgage crisis would never happen?"
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https://www.bloomberg.com/news/articles/2017-05-25/investors-say-it-s-time-to-price-climate-into-cities-bond-risks