SAN FRANCISCO - Moody's Investors Service downgraded the rating on Marysville, Calif. to Baa1 from A3, and the rating on its certificates of participation to junk following a failed local ballot measure in November.
The ratings agency dropped the city's 2011 taxable COPs to a Ba3 rating from Baa3 and assigned a negative outlook.
"The downgrade of the COPs to Ba3 reflects the heightened risk of a payment default or restructuring for certificate holders," analysts said in the report released Nov. 25. "The downgrade follows the failure of a local ballot measure in the November 2014 election that would have increased the city's sales tax rate and provided critical support for the city's strained finances."
The COPs are secured by the city's covenant to budget and appropriate lease payments to the Marysville Public Financing Authority for the use of occupancy of a five-acre site of undeveloped land and a community baseball park.
Moody's said the collateral backing the COPs provides little, if any, recovery value in the event of possession and release upon default.
Credit strengths for the city include limited debt, pension and post-employment health liabilities and tax base values and sales tax collections that have shown recent improvements.
Challenges include an increasingly short time horizon to establish how increased lease payments will be managed and revenue declines that have forced deep cuts to city services.
"The negative outlook reflects the challenge the city will have in meeting the near-term escalation of lease payments from existing budget resources, which could potentially lead to a default and losses for certificate holders," Moody's said.
Failure to identify how COP payments will be managed could result in further downgrade.
Marysville, population 12,000, is located in Yuba County, 42 miles north of Sacramento.
