LOS ANGELES — A small Riverside County, Calif. city that has flirted with a second Chapter 9 bankruptcy received an improved outlook from Standard & Poor's.
S&P analysts pointed to temporary budget relief that has eased medium term cash flow and lowered the risk of bankruptcy in revising Desert Hot Springs' outlook to stable from negative on Dec. 29.
The rating agency affirmed an A-minus long-term rating on the California Statewide Communities Development Authority's series 2012A transportation revenue certificates of participation issued on behalf of Desert Hot Springs.
The city, 10 miles north of Palm Springs, has a population of 28,000.
"The outlook revision reflects our view that the city has received temporary budgetary relief that has eased its medium-term cash flow challenges," said
Standard & Poor's credit analyst Chris Morgan. "This, we believe, has lessened the risk that it will divert pledged revenue in response to cash flow shortfalls or file for bankruptcy protection."
The City Council voted unanimously in November 2013 to declare a fiscal emergency, a required first step before declaring Chapter 9 bankruptcy. If it had taken that step it would have been its second foray into bankruptcy.
It filed for Chapter 9 bankruptcy in 2001 after losing a legal judgment involving a mobile home park developer. It exited bankruptcy in 2004.
The COPs represent an interest in installment payments that the city makes, as purchaser, to the authority, as seller.
The stable outlook takes into account that the city's operations remain exposed to "long-term structural challenges that, if unresolved, could weaken its liquidity position," Morgan said.
The city's cost-cutting measures and one-time factors seem likely to translate into at least adequate cash during S&P's two-year outlook horizon.
"We do not anticipate that the city will borrow from gas tax accounts during this period," Morgan said.
