Moody's has observed that "an increasing number of local government owned companies are accessing the public debt markets with rated debt instruments". These companies are involved in a number of different industries including transportation, power, water and sewer infrastructure. Moody's approach to rating these companies has been to focus on the "underlying business fundamentals of the issuer and its legal and economic relationship with its public sector owner". Key credit factors include:
■ The nature of the issuer's corporate structure; and the legal and political relationship with the owners;
■ The degree of independence in setting rates and tariffs;
■ Segregation of finances from the parent owners;
■ Whether there is a historic practice of using company revenues to fund unrelated capital projects, issue debt for non strategic purposes, or make loans to other unrelated entities;
■ History of respect by the national legal system for indenture covenants that protect the bondholders.
Moody's recognizes that the process by which they assess the relationship between the issuer and the subsovereign government owner is "not formulaic", and is in fact assessed on a case-by-case basis.