How Standard & Poor's Intends To Finalize Its U.S.

Local Governments GO Criteria And Apply Them To Ratings

Primary Credit Analysts: Jeffrey J Previdi, New York (1) 212-438-1796; jeff.previdi@standardandpoors.com Lisa Schroeer, Charlottesville (1) 434-220-0892; lisa.schroeer@standardandpoors.com Horacio G Aldrete-Sanchez, Dallas (1) 214-871-1426; horacio.aldrete@standardandpoors.com

Table Of Contents
How We Expect The New Criteria To Affect Ratings How We Will Implement The New Criteria How We Will Communicate Our Rating Actions Format Of Our Research Updates Related Criteria And Research

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How Standard & Poor's Intends To Finalize Its U.S. Local Governments GO Criteria And Apply Them To Ratings
Next week, Standard & Poor's Ratings Services intends to publish its revised criteria for U.S. local government issuer credit ratings and issue ratings on general obligation (GO) bonds issued by municipal governments that are not special purpose districts. Examples of local government entities included in the scope are cities, counties, towns, villages, townships, and boroughs. Examples of special purpose districts excluded from the scope are school, library, park, and forest preserve districts, among others. The criteria also do not apply to U.S. states. The new criteria will be effective upon its publication. We plan to complete our review of the applicable existing ratings within a 12-month window. We cannot accept any requests for expedited review of ratings during this process given the magnitude of the rated universe. Though highly unlikely, we could delay this schedule if a material credit event occurs, particularly if the impact could take some time to assess. However, we would clearly communicate any change to our plans. The criteria update is part of Standard & Poor's commitment to the market to enhance the transparency, rigor, and specificity of its criteria across sectors and asset classes. Our objective is to provide market constituents with greater insight into how we rate local governments and to enhance the global comparability of our ratings through a clear, coherent, and globally consistent criteria framework. We began communicating the process of updating our criteria when we published an advance notice of proposed criteria change in January 2012. We then published our proposed revised ratings framework in March 2012. During the subsequent three-month comment period, we interacted with several hundred market participants within the U.S. through roundtables, teleconferences, and one-on-one meetings. We used these sessions to increase participants' awareness and understanding of the proposed changes and to solicit, evaluate, and incorporate feedback where appropriate. Based on our initial interactions, we published an additional FAQ regarding the proposed criteria in May 2012. When the request for comments period ended, we published a report in September 2012 that summarized comments from our outreach interactions, in which we outlined the most common areas that we had received feedback on and discussed our implementation plans. We are now providing information about the likely ratings impact of the criteria changes, a more detailed explanation of the implementation process, and comment on how we intend to apply the revised criteria to our current ratings.

How We Expect The New Criteria To Affect Ratings

Standard & Poor's maintains issuer credit ratings or ratings on GO debt (or debt equivalent to or based on the GO rating) for more than 4,000 governments included in the scope of the proposed criteria. Assuming that governments maintain their current credit characteristics, quantitative testing suggests that about 60% of the ratings would remain unchanged under the proposed criteria, while about 30% of the ratings would increase and about 10% would decrease,

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How Standard & Poor's Intends To Finalize Its U.S. Local Governments GO Criteria And Apply Them To Ratings

generally by one notch. Actual results will likely be somewhat different due to the presence and impact of the qualitative factors of the criteria.

How We Will Implement The New Criteria

We intend to complete our review of issuers affected within 12 months of the effective date of the new criteria. Our implementation schedule is as follows:

Week of Sept. 9, 2013:

We plan to publish our revised rating methodology for U.S. local governments. At which point, all new issue rating requests, including those already in process prior to the release of the new criteria but not yet completed, will be released under the newly published criteria. Any rating reviews, either scheduled or event driven, will be assessed under the new criteria. We aim to publish our institutional framework factor scores and companion rationales for each state simultaneously with the revised rating methodology. We will upload the criteria articles and related articles, as well as explanatory materials, including CreditMatters TV videos, onto our dedicated public Web site www.standardandpoors.com/localGOcriteria to allow for easy access and maximum transparency. We plan to issue a group media release with the ratings not expected to change as a result of the new criteria. No ratings will be placed on CreditWatch or under criteria observation as a result of the revised methodology. We cannot disclose the timing for any reviews for particular credits beyond the guidance provided in this notice.

Week of Sept. 16 through mid-December

We aim to review our credits with a population of 1 million or more, including those that are not expected to change as a result of the new criteria. We plan to review the credits that our quantitative testing indicates would move either up or down by three or more notches. Not all issuers will be contacted during this review process, however, some may be contacted if additional information is needed to complete the review. We cannot accept any requests for expedited review of ratings during the implementation period given the magnitude of the rated universe.

Mid-December through September 2014

Once we complete our reviews of the credits that our quantitative testing indicates would move either up or down by three or more notches, we will continue to review our existing rated portfolio focusing on ratings that our quantitative testing indicates would move either up or down by two notches, and then the remaining ratings that our quantitative testing indicate might move. We cannot accept any requests for expedited review of ratings during the implementation period given the magnitude of the rated universe.

How We Will Communicate Our Rating Actions

We will communicate our rating actions related to the criteria reviews in one of two ways: Any rating changes will be communicated with releases for the particular credit. Rating actions dependent on the

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How Standard & Poor's Intends To Finalize Its U.S. Local Governments GO Criteria And Apply Them To Ratings

GO rating, such as appropriation or moral obligation debt, will be released in tandem with the GO rating. We plan to publish ongoing group media releases for additional ratings that we do not expect to change as a result of the release of the new criteria.

Format Of Our Research Updates

The research updates will include our assessment of the following rating components of the relevant credit, comprising: Economy; Management; Budgetary Flexibility; Budgetary Performance; Liquidity; Debt and Contingent Liabilities; Institutional Framework.

The research updates will be available at www.standardandpoors.com/publicfinance and on RatingsDirect. Ratings on specific issues will be available on RatingsDirect and www.standardandpoors.com following release.

Related Criteria And Research

The below articles are available on RatingsDirect. Advance Notice Of Proposed Criteria Change: U.S. Local Government General Obligation Bonds, Jan. 26, 2012 Request for Comment: U.S. Local Governments: Methodology And Assumptions, March 6, 2012 The Impact Of Economic And Fiscal Pressures On Credit Quality: Using S&Ps Proposed Criteria For Rating U.S. Local Governments To Estimate Rating Distributions, March 6, 2012 Credit FAQ: Request For Comment On Proposed Changes In U.S. Local Government Rating Methodology And Assumptions, May 16, 2012 What's Happening With The Proposed U.S. Local Government Criteria? An Update On Feedback And Implementation, Sept. 19, 2012 Use Of CreditWatch And Outlooks, Sept. 14, 2009

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