SAN FRANCISCO — Fitch Ratings late Monday downgraded its short-term rating on California’s $5 billion in revenue anticipation notes to F2 from F1.
The ratings agency cited a “severe erosion of state revenues and cash resources since note issuance, prompting payment deferrals while the state develops solutions to its deficits.”
The cash-flow notes were issued in October in a market environment shaped by the bankruptcy of Lehman Brothers Holdings in September.
Amid doubts such a sizable deal could be done at all, the notes were priced with yields between 3.75% for notes maturing in May to 4.25% for those maturing in June.
Since then, California’s budget picture has gone from bad to much worse.
According to Fitch, since the notes were sold in October the state's baseline forecast of fiscal 2008-09 cash receipts has dropped by 13%, to $89 billion.
Legislative negotiations over budget solutions have yet to bear fruit, and State Controller John Chiang has already announced that he has begun to defer some payments in order to preserve resources for constitutional priority payments such as debt service.
Today’s action brings Fitch in line with the other two major ratings agencies on the California RANs. In December, Standard & Poor’s dropped its ratings on the RANs to SP-2 from SP-1, and Moody’s Investors Service on Jan. 21 downgraded the credit to MIG 2 from MIG 1.