Aguirre Eyes Insurer Suit

San Diego city attorney Michael Aguirre said he may join Los Angeles and Stockton in lawsuits against municipal bond insurers.

Aguirre said in an interview that he is considering suing Ambac Assurance Corp. over an insurance policy on the city’s 2002 bond issue for Petco Park, the home of Major League Baseball’s San Diego Padres.

The city issued $166 million of debt to build the stadium in 2002, paying $6 million  for insurance, and refinanced the bonds in a private placement last year. Aguirre said the insurance did not help the city achieve low interest rates on the debt. The story was first reported by Reuters.

Los Angeles and Stockton last week sued six bond insurers, including Ambac, alleging the companies sold local government “worthless” insurance, failed to disclose their exposure to subprime housing loans, and conspired to force rating agencies to maintain a dual rating system that overstated the risk in municipal bonds.

Aguirre said he was still unsure if he would sue Ambac because his office might not have the resources needed to pursue the case, and a suit might distract from San Diego’s effort to regain access to the public muni bond market.

The city attorney said he would definitely not join any lawsuit against the credit rating agencies. Connecticut Attorney General Richard Blumenthal earlier this week sued the rating agencies over their alleged dual ratings system.

Aguirre said joining that lawsuit is the “last thing” San Diego needs to do. The city was shut out of the public bond markets when Standard & Poor’s withdrew its rating in 2004 after California’s second-largest city was caught hiding its unfunded pension liabilities from investors and the public.

The Securities and Exchange Commission sanctioned the government for securities fraud in 2006, and the city has worked for four years to regain its credit ratings and regain access to the public bond market. Standard & Poor’s reinstated its rating earlier this year, and the city plans to begin issuing bonds again in the next few months.

San Diego’s general obligation bonds are rated A by Standard & Poor’s, A3 by Moody’s Investors Service, and BBB-plus by Fitch Ratings.

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