Standard & Poor's Ratings Services said it raised its rating on the town of Mammoth Lakes, Calif.'s certificates of participation to BB-plus from C.

The outlook is stable.

"We base the upgrade on our view of a recent negotiated settlement between the town and its largest creditor, Mammoth Lakes Land Acquisition, as well as the town's successful November 2012 withdrawal of its petition for bankruptcy," said Standard & Poor's credit analyst Sussan Corson.

This bankruptcy filing was withdrawn before the bankruptcy court found the town eligible for bankruptcy. While Mammoth Lakes submitted a petition for Chapter 9 in July 2012, its immediate withdrawal of the petition and the town council's recently adopted multi-year budget restructuring plan to accommodate the settlement payments somewhat mitigate the rating agency's concern about the town's future willingness to pay debt service. The sizable budget adjustments necessary to accommodate the annual settlement payments, however, pressure Mammoth Lakes' financial flexibility.

In the spring of 2012, Mammoth Lakes entered into a mediated neutral evaluation process with its creditors under California Government Code section 53760.3 (AB 506). This was a preliminary step required by recent state law for municipalities considering bankruptcy. While the town sought concessions from its employees and other creditors, we understand it submitted a bankruptcy petition in July 2012 after Mammoth Lakes Land Acquisition (MLLA) did not attend the AB 506 mediation discussions.

In a subsequent settlement agreement with MLLA in September 2012, Mammoth Lakes agreed to pay to MLLA $2.5 million in the current fiscal year and $2.0 million annually beginning in fiscal 2014, or 11% of fiscal 2014 projected general fund expenditures, over a period of 23 years.

Mammoth Lakes is 250 miles east of San Francisco in Mono County in the eastern Sierra Nevada Mountains at an elevation of 7,000 feet; it is generally known for its very large and popular Mammoth Mountain Ski Resort, which dominates the local economy.

The stable outlook is based on Mammoth Lakes' restructuring plan, which would accommodate an ongoing $2 million annual settlement payment while maintaining thin-but-adequate budgetary reserves in the next five years, although it incorporates large cuts to public safety expenses and relies on one-time revenue in the near term.

Should the town implement budget adjustments as planned to approach structural budgetary balance including the settlement payment, the rating agency said it could raise the rating in the next year. The town's failure to maintain adequate general fund reserves on a GAAP basis as it absorbs the additional settlement costs into the budget and manages potential fluctuations in general fund revenue could lead to a downgrade.

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