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Los Angeles Boots S&P Pool Rating

AUG 16, 2011 6:47pm ET
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SAN FRANCISCO — Los Angeles has dropped Standard & Poor’s from rating its $7 billion investment portfolio after the agency downgraded it along with the United States last week.

“Quite frankly, we just don’t want to be associated with [Standard & Poor’s] anymore based on that decision. We think it was irresponsible and just excessive,” Thomas Juarez, the city’s chief investment officer and assistant treasurer, told The Bond Buyer.

Standard & Poor’s downgraded the city’s general investment pool to AAf from AAAf last week. It was among 73 fund ratings Standard & Poor’s downgraded because of “significant exposures” to U.S. Treasury and agency securities after it lowered the nation’s credit rating to AA-plus from AAA earlier this month.

Juarez said the rating agency’s methodology and lack of transparency surrounding its decision to downgrade the U.S. debt was the main reason for canceling the contract with Standard & Poor’s.

Juarez said Standard & Poor’s, after reportedly making a $2 trillion mathematical error in its calculations, erred by basing the U.S. downgrade solely on the political divide in Congress.

He said the agency’s rating, the sole rating of the investment portfolio, was discretionary and something the city’s former treasurer felt was important.

Interim Treasurer Steve Ongele told the City Council’s Budget and Finance Committee Monday of the decision to yank the rating.

A spokesperson for Standard & Poor’s declined to comment on the city’s decision.

The city’s combined investment portfolio is about 80% Treasury bonds and government agency fixed-income securities.

Los Angeles’ general investment portfolio totaled $6.94 billion dollars as of the end of April with investments in fixed-income securities that mature from one to five years, according to the city’s most recent investment report, released last month.

The rating agency had said in a March report that the city’s portfolio had a low market-risk profile and conservative investment policy.

Juarez said the treasurer’s decision had no bearing on the city’s debt management side.

Moody’s Investors Service rates Los Angeles general obligation bonds Aa3, while Fitch Ratings and Standard & Poor’s rate them an equivalent AA-minus.

Anaheim, Calif.’s investment pool also suffered a downgrade, along with the 73 others on Aug. 8.

Henry Stern, Anaheim’s treasurer, said Standard & Poor’s did give the city a warning when they put them on credit watch last month.

“I am not pleased with the process,” Stern said. “We have to follow in lockstep with the downgrade of the securities that we hold.”

The agency downgraded Anaheim’s investment pool to AAf from AAAf. Stern said Standard & Poor’s provides its only rating.

“Our bottom line is, we don’t overreact, we look at things in an objective manner,” Stern said.

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