What is the main focus of credit rating agencies in municipal finance?

The primary focus of credit rating agencies in municipal finance is to evaluate the risk associated with municipal securities. These agencies analyze various factors such as the issuing municipality's financial health, economic conditions, debt levels, management practices, and overall creditworthiness. The ratings they assign help investors make informed decisions about purchasing municipal bonds. A higher credit rating generally indicates a lower risk of default, making such securities more attractive to investors.

This assessment provides valuable insights not only to investors but also to the municipalities themselves, as a favorable rating can lead to lower borrowing costs and enhanced access to capital markets. Consequently, credit rating agencies play a crucial role in determining the fiscal viability of municipalities and maintaining investor confidence in the municipal bond market.