Moody's said Wednesday that the ratings of US government-related firms, municipal bond issuers and even private firms could be hit if the Washington defaults on debt payments in August. The agency reiterated that if the country's $14.29 trillion debt ceiling is not raised by August 2, the government could default on debt payments and would see its top grade Aaa debt rating erode, either with a negative warning or an outright downgrade.
It said that, in that case, government-controlled debt issuers like mortgage backers Fannie Mae and Freddie Mac would see their ratings equally downgraded. Feeling the same heat would be municipal debt issuers who use government-linked securities as collateral, Moody's said.
But Moody's added that debt issuers even with no federal government links, private or otherwise, could also see their ratings slide if the US was downgraded, because that could hurt the overall economy, the banking system and the dollar. Moody's raised the issue as the White House and Congress remained deadlocked over increasing the country's debt ceiling. The government has said that if the ceiling is not raised by August 2, it would be forced to hold back debt payments and/or slash spending.
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