The rating agency, which also put the bonds on CreditWatch Negative, cited weakening liquidity and aging assets.
"Unsurprisingly, the market is taking these numbers in stride, with the bond market only slightly higher after a large rally over the last couple of days due to the equity market sell-off," said John Kerschner, global head of securitized products and portfolio manager at Janus Henderson Investors.
The lawsuit contends the city is not complying with a 2024 voter-approved charter amendment requiring increased spending on police.
Bonding should increase in the next few years to address aged state and local infrastructure, Moody's Vice President Dan Seymour said.
A California Department of Water Resources issuance, based on a resolution extending contracts with water agency customers, drew strong demand.
Cases involving bonds for the city's convention center and a light-rail project are pending before the Texas Supreme Court.
