S&P Drops Revenue Debt

After downgrading California’s general obligation bond rating to A from A-plus Tuesday, Standard & Poor’s followed suit Wednesday by dropping its underlying rating on state lease revenue bonds to A-minus from A.

The action affects about $7.6 billion of outstanding lease revenue bonds, both new money and refunding, issued by the California State Public Works Board and various other state-related entities. The credits had previously been on negative watch; their new outlook is stable.

“We understand that the controller is treating payments on its lease revenue bonds as priority payments and publicly listing them as immediately following payments to its public school system, public institutions of higher education, and its GO debt service,” Standard & Poor’s credit analyst Gabriel Petek said in a statement. “We view this high-priority treatment of the lease payments as important, given the controller’s move to delay for up to 30 days the disbursement of certain other payments in order to preserve cash for obligations that the controller deems under the law as having high-priority claims on the state’s general fund cash.”

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