LOS ANGELES - Standard & Poor's has revised its outlook on Stockton Public Financing Authority, Calif.'s revenue bonds to stable from negative, but kept the rating in junk bond territory.
Stockton, located 83 miles east of San Francisco, filed for bankruptcy protection in July 2012. The trial to consider confirmation of the city's proposed bankruptcy exit plan is set for May 12.
The authority's Series 2006A revenue bonds, issued on behalf of the successor to the Stockton Redevelopment Agency, are rated at B.
The bonds are secured by three separate loans to be paid to the authority from tax increment revenue, net of a 20% housing set-aside requirement, from three project areas. These include the city's North, Midtown Merged, and South Merged project areas.
"The outlook revision reflects our view of a break in a trend of assessed valuation declines in the three redevelopment project areas that support the three loans that the agency uses to repay the bonds," said Standard & Poor's credit analyst Chris Morgan. "The outlook revision also reflects our view of the agency's continued observance of series 2006A bond provisions after changes in state law that, among other effects, pooled tax increment revenue by agency."
The B rating reflects a view of the agency's high volatility ratios in the project areas supporting the bonds, concentrated tax bases and likely inadequate coverage of maximum annual debt service in fiscal 2014, and several pledge of revenue, with no requirement that the successor agency use surpluses from one loan to cover shortfalls of another.
Stockton has acted as successor agency to the former redevelopment agency since the state legislature dissolved all redevelopment agencies in California in 2012.
Although the city is currently operating under protection from its creditors under Chapter 9, analysts said they believe the city has shown willingness to meet the successor agency's obligations.
