LOS ANGELES — Standard & Poor's raised several Stockton, Calif. water system bond ratings, but said the ratings reflect the lingering effects a bankruptcy can have on the city’s reputation.
The city officially exited Chapter 9 bankruptcy protection last week.
S&P upgraded its long-term rating to A from A-minus on the Stockton Public Financing Authority remarketed $55 million senior-lien series 2010A water revenue variable-rate demand bonds. The rating agency raised its underlying rating to A from A-minus on the authority's parity senior-lien series 2005A bonds. It also raised the long-term rating to A-minus from BBB-plus on the authority's subordinate-lien series 2009A and 2009B bonds. The AA-minus long-term rating on the series 2005A bonds is unchanged and solely reflects the rating on the bond insurer, National Public Finance. Guarantee Corp. All bonds were issued on behalf of the City of Stockton.
The outlook is stable.
"The rating action reflects our view of the credit quality of the water utility's operations, the specific security, and the legal protections in place," said Standard & Poor's credit analyst Paul Dyson. "At the same time, despite the recent exit from bankruptcy, the ratings continue reflect our view of the lingering effects a bankruptcy can have on the city's reputation that could result in longer-term financial and morale damage to its residents.”
The stable outlook reflects the rating agency’s view that, during the next two years, debt service coverage will remain very strong on the senior lien and at least adequate on combined senior and subordinate debt as the city adjusts rates annually to align revenue with rising costs while maintaining strong liquidity, according to the report.
