SAN FRANCISCO - Following the confirmation of Stockton, Calif.'s bankruptcy exit plan, Moody's Investors Service upgraded to still speculative-grade Ba3 from Caa3 Stockton's series 2006 lease revenue bonds
and affirmed the city's 2007 pension obligation debt at an underlying Ca. Moody's removed the developing outlook from the Series 2006 bonds and removed the negative outlook from the Series 2007 bonds.
Also on Nov. 6, Moody's upgraded the rating on the city's senior water enterprise debt to investment-grade A3 from junk-level Ba1. Moody's also withdrew its ratings on the city's sewer enterprise debt because the city has refunded those bonds.
"The upgrade for the water system's senior lien debt is a direct result of the bankruptcy court's confirmation of the city's plan of adjustment," Moody's analysts said in a report. "This confirmation formally ends the period of uncertainty stemming from the city's bankruptcy."
The pension bond rating reflects significant losses absorbed by insurer Assured Guaranty, Moody's said.
The 2006 lease-revenue bonds were not impaired.
"Therefore, the Ba3 rating reflects our forward-looking evaluation of the city's credit fundamentals, tax base, financial position and debt, including the lease-revenue pledge versus California's general obligation pledge, and the city's recent bankruptcy," Moody's said.
U.S. Bankruptcy Judge Christopher Klein approved the city's plan of adjustment on Oct. 30. Under the plan, the water system's debt was unimpaired.
The rating for that debt now solely a reflection of the system's fundamental strengths and weaknesses, Moody's said. Its outlook is stable.
Some of the water system's credit strengths include sound debt service, a significant geographical area of local economy that the system encompasses, solid water enterprise operations, and a diversity of supply and sufficient water rights to weather the drought.
The system's debt profile consists of only fixed-rated debt. With the relatively recent addition of a water treatment plant, the system's additional capital needs are modest, analysts said.
