Standard & Poor's Ratings Services said it lowered its underlying rating on King City Public Financing Authority, Calif.'s certificates of participation issued for King City to BBB from A and placed the rating on CreditWatch with negative implications.
"The rating action reflects our view of the city's increased and material interfund borrowing from the sewer fund coupled with negative fund balances in multiple city funds — including the city's general fund — which led the city's auditor to raise doubt about the city's ability to continue as a going concern," said Standard & Poor's credit analyst Tim Tung.
The rating reflects the enterprise's: exposure to unexpected liquidity draws by city funds with negative balances through the city's pooled cash mechanism, lack of timely audited financial results, limited local economy with concentration in agriculture and high unemployment rates, and moderate service rates that offer management little in the way of revenue-raising flexibility given the service area's below-average income levels.
The agency anticipates resolving the CreditWatch listing on the COPs with the release of additional audited financial information, which it believes will indicate whether this trend persisted into fiscal year 2012 or if the city was able to make adequate progress balancing its various negative funds, most critically, the city's general fund. Management reports that the city has no plans to declare a fiscal emergency and anticipates releasing the city's fiscal year 2012 audit by January 2013.