Skip to main Content

Oil price collapse prompts agency to lower Alaska credit outlook

  • Author: Dermot Cole
    | Opinion
  • Updated: September 28, 2016
  • Published December 16, 2014

FAIRBANKS -- Moody's Investors Service said Tuesday it lowered the credit outlook for Alaska because the plunge in oil prices "threatens to rapidly and significantly reduce the state's budgetary reserves."

The rating agency said the change in outlook could apply to $840 million of general obligation bond debt, $290 million of "subject-to-appropriation debt" and about $870 million of bonds backed by the "moral obligation" of the state and issued by the Alaska Municipal Bond Bank and the Alaska Energy Authority.

It said it affirmed the Triple A ratings on general obligation bonds and its other existing ratings on Alaska debt, but warned about the effect of continued low oil prices. It changed the Alaska outlook from stable to negative.

"The negative outlook signals that this year's rapid oil price decline, and expected prices below prior forecasts in coming months, will lead Alaska to substantially reduce financial reserves by the end of fiscal 2016. A rapid reserve-depletion scenario -- especially in the absence of feasible plans to rebuild reserve funds, to diversify tax revenue streams or to impose strict cuts on expenditures -- would be consistent with a lower credit rating," Moody's said.

The state's financial reserves before the drop in oil prices tended to offset the "fact that Alaska is far more vulnerable than any other U.S. state to the global political, economic and other factors affecting oil supply," the agency said.

"But just as the state has benefited from high oil prices in recent years, prices well below previous expectations could lead the state to substantially reduce its financial reserves, eroding a key support to its AAA rating," the agency said.

Comments
Sponsored