Maryland terminated its relationship with Moody's Ratings in May 2025, weeks before an $800 million general obligation bond sale, after the agency downgraded the state from Aaa to Aa1 in late 2024. The state retained S&P and Fitch, both of which maintain AAA ratings on Maryland paper. The bond sale priced without incident.

Moody's cited pension liabilities and slowing revenue growth in its November downgrade. Maryland Treasurer Dereck Davis called the rationale "misaligned with fiscal reality" and noted the state carried $2.1 billion in reserves against a $63 billion operating budget. The decision to drop Moody's was announced three weeks before the bond calendar opened. No other state has formally severed ties with a major rating agency in the past two decades, according to Government Finance Officers Association records.

The move matters because it tests whether rating agencies retain pricing power when states hold split ratings. Maryland's $800 million sale saw investor demand exceed supply by 1.8x, with yields tracking the S&P AAA benchmark within 4 basis points. That spread is narrower than the 7-to-9 basis point penalty Moody's had forecast for Aa1-rated credits in secondary trading. If Maryland's borrowing costs remain stable over the next two issuances, other states nursing downgrade grievances will notice. Illinois, Connecticut, and New Jersey have each seen Moody's downgrades since 2020 while maintaining higher ratings elsewhere.

The structural issue is monopoly-adjacent behavior in a three-firm market. Moody's, S&P, and Fitch control 94% of the U.S. municipal rating business, per SEC disclosures. States pay annual fees ranging from $75,000 to $150,000 per agency for rating coverage, with no obligation to retain all three. Maryland's move suggests that when two agencies agree on creditworthiness, the third becomes negotiable. That changes the calculus for Moody's, which has issued 22 state downgrades since 2020 versus 9 upgrades. If ratings no longer guarantee fee revenue, agencies face pressure to recalibrate models or risk client attrition in a shrinking market.

Watch whether Illinois or New Jersey drop Moody's before their next bond sales, both scheduled for Q3 2025. Illinois carries a split rating with Moody's two notches below S&P. Connecticut's Treasurer has publicly questioned Moody's pension assumptions. If either state follows Maryland, rating-agency fee structures will reprice within twelve months. Separately, the Municipal Securities Rulemaking Board is reviewing whether rating-agency methodologies require enhanced disclosure under Rule G-17, with a comment period closing in July.

Maryland's $23 billion in outstanding general obligation debt will reprice over the next eighteen months as older issues mature. The state's next bond sale is slated for November 2025, again without Moody's participation.