Moody's Investors Service said it has downgraded the county of San Diego's pension obligation bond rating to Aa3 from Aa2.
Moody's also affirmed the county's Aa1 issuer rating and the Aa3 rating on the county's outstanding certificates of participation and lease obligations. The outlook is stable.
The downgrade creates a two-notch distinction between the POB rating and the county's issuer rating. The county's issuer rating reflects what the county's secured, general obligation rating would be if the county issued such debt.
The rating change reflects the changed view of the pledge supporting POBs versus general obligation bonds. Moody's believes this pledge is relatively less secure than prior estimates, both in terms of probability of default and likely losses in the event of default.
Security for pension bonds is a pledge of all of the county's legally available resources. This promise is notably in contrast to the stronger, voter approved general obligation pledge that provides a baseline for Moody's estimate of the county's credit quality.
Under California law, a GO pledge is an unlimited ad valorem property tax pledge. A general obligation bond issuer must raise property taxes by whatever amount necessary to repay the obligation, irrespective of the issuer's general financial position.
This distinction between a GO security and the narrower POB pledge is reflected in the current two-notch rating differential.
The affirmation of the county's other long term ratings is derived from the county's strong and stable fiscal position, very large and slowly growing economy, and low debt levels.
