S&P Drops San Bernardino Housing TABs

Standard & Poor’s said Wednesday it has downgraded San Bernardino Joint Powers Financing Authority housing tax-allocation bonds to BBB from A-minus, citing the city’s bankruptcy declaration.

The rating agency also kept its BBB long-term rating on the authority’s non-housing tax allocation bonds issued in 2010. All of the ratings remain on watch for another downgrade.

S&P said the negative rating action follows the city’s decision to file for Chapter 9 bankruptcy protection on Aug. 1.

“Even though the Series 2010A, 2010B and 2006 bonds’ pledged revenues do not flow through the city’s general fund, in our opinion the actions by the city call into question its general willingness to pay debt service,” said Standard & Poor’s analyst Li Yang.

San Bernardino, a city of more than 211,000 located 65 miles from Los Angeles, filed for bankruptcy after becoming mired in a $46 million deficit for fiscal 2013.

The city filed papers in the U.S. Bankruptcy Court Central District of California in Riverside, saying it had as much as $1 billion of liabilities, $1 billion of assets, and between 10,000 and 25,000 creditors.

In the next two weeks, the city’s management is expected to propose to the City Council a plan to keep the city solvent during the bankruptcy process.

After the council adopts the plan, the city would develop a plan of adjustment to file in bankruptcy court that would lay out how San Bernardino hopes to restructure its debts.

Last month the council gave the city attorney the authority to file for Chapter 9 protection because it said it would otherwise be unable to pay its workers.

The City Council has since adopted an emergency budget that includes no general fund payments toward its $50 million of pension obligation bonds.

According to San Bernardino’s 2010 audited financial report, its most recent, the city had $223 million of outstanding debt at the end of June 2010, of which $131 million were tax-allocation bonds.

For reprint and licensing requests for this article, click here.
Bankruptcy California
MORE FROM BOND BUYER