Moody’s upgrades state’s credit rating again – putting it at A1 for its general obligation bonds

The upgrade, the second from Moody’s in just over the year, puts state at fifth highest of 21 possible ratings grades

This is where the state’s credit rating is at. When the state gets a ratings upgrade, the upgrade in itself is no longer a noteworthy accomplishment – it now is noted among how many consecutive upgrades there have been and over what time period.

On Thursday afternoon, it was news that Moody’s Investors Service had upgraded New Jersey’s issuer rating and its rating on the state’s general obligation bonds to ‘A1’ from ‘A2.’ Moody’s cited the state’s “solid economic recovery (and) an unprecedented level of budgetary surplus.”

This is Moody’s second upgrade in just over a year, bringing New Jersey’s rating to its highest level in nearly a decade. This is the fourth upgrade the state has received from a major ratings agency since March of 2022.

In assigning the upgrade, Moody’s said: “New Jersey’s issuer rating upgrade to A1 incorporates a solid economic recovery, with job gains leading the region and driving employment above the state’s pre-pandemic peak. It is supported by the state’s commitment to full, actuarial pension contributions through fiscal 2024 (starting 7/1/2023) and its additional allocations of funds to a program to decease debt and cash-fund capital projects. These factors underscore continuing improvement in New Jersey’s governance characteristics.”

Moody’s ratings

Moody’s, one of the three big ratings agencies, has at least 18 rankings for general obligation bonds. An A2 grade is the sixth-highest. (More than half the states have one of the two top ratings.)

Moody’s has 21 ratings grades. Here are the ten highest, all are considered “investment grade”:

  • AAA: Prime
  • Aa1: High grade
  • Aa2: High grade
  • Aa3: High grade
  • A1: Upper medium
  • A2: Upper medium
  • A3: Upper medium
  • Baa1: Lower medium
  • Baa2: Lower medium
  • Baa3: Lower medium

    What the ratings mean:

    Aaa: Rated as the highest quality and lowest credit risk;

    Aa1, Aa2, Aa3: Rated as high quality and very low credit risk;

    A1, A2, A3: Rated as upper-medium grade and low credit risk.

    Baa1, Baa2, Baa3: Rated as medium grade, with some speculative elements and moderate credit risk.

    The 11 grades below are considered “speculative grade.”

The agency also noted New Jersey’s budget surplus.

“An unprecedented level of budgetary surplus should position the state to respond to any economic dislocations caused by rising interest rates or other near-term conditions, while also maintaining the commitment to diligent long-term liability management,” the agency said.

Gov. Phil Murphy and Treasurer Elizabeth Maher Muoio were thrilled to make the announcement.

“This upgrade from Moody’s is further proof that the choices we’ve made to prioritize our surplus and our long-neglected pension contributions have paid off,” Murphy said. “We’ve achieved this sound financial footing while continuing to invest in the essential programs New Jerseyans rely on.”

Muoio agreed.

“This latest upgrade is a testament to the administration’s diligent efforts to put New Jersey on a sound fiscal foundation,” she said. “Gov. Murphy’s focus on making the full pension payment in each of the last three years, while at the same time paying down the state’s outstanding debt and building a more sustainable surplus has paid dividends in the form of four credit rating upgrades in the past 13 months.”

In March of 2022, Moody’s upgraded the state’s general obligation bonds from ‘A3’ to ‘A2,’ followed closely by S&P, which upgraded its rating from ‘BBB+’ to ‘A-.’ In September, Fitch Ratings upgraded its rating to ‘A’ from ‘A-.’