SAN FRANCISCO — Moody’s Investors Service Wednesday downgraded Sacramento County’s issuer rating to A2 from A1, citing “major financial challenges” in the coming year, including an unbalanced budget and a large letter-of-credit portfolio facing rollover.
The outlook remains negative. “The negative outlook is predicated largely on its inability to achieve structural balance in recent years, which does not bode well for the coming one,” Moody’s said in a news release.
The county’s challenges include a projected $187 million deficit for fiscal 2010, and $205 million in letters of credit slated to expire in March.
“It could be difficult for the county to obtain cost-effective credit enhancement given its credit position and the tight market for such enhancement,” Moody’s said.
A fixed-rate conversion would also be challenging, analysts noted, because it would involve addressing a swap portfolio that is currently underwater to the tune of nearly $200 million.
“The negative outlook reflects both the circumstances in which the county finds itself and, more importantly, the fact that the county has no recent history of anything other than expedient one-time fixes to budgetary imbalances,” the Moody’s news release said. “The political willingness and ability to create structural balance has been noticeably absent, yet is going to be critical if the county is going to meet its budget challenges for fiscal 2010.”
Moody’s concurrently downgraded Sacramento County’s pension obligation bonds to A3 and certificates of participation to Baa1.
Standard & Poor’s downgraded Sacramento County’s issuer credit rating to A-plus from AA-minus in April. Its outlook is stable. Fitch Ratings assigns A-plus underlying ratings to county certificates of participation and pension obligation bonds.
