Standard & Poor’s and Moody’s Investors Service further downgraded Stockton, Calif., bonds this week after its City Council voted to delay bond payments and enter negotiations with creditors to try to avoid bankruptcy.
Standard & Poor’s cut its issuer Wednesday to CC from BB, after dropping the city last week from A-minus. It said it could downgrade the credit in the future.
S&P said it’s concerned about the potential implications of the city’s decision to enter negotiations with creditors, including bondholders, to try to reduce debts as part of a new state law, AB 506.
The city has also said it will restate financials for previous years and may not file an audited finance report for fiscal 2011 until June 2012, raising worries about Stockton’s true financial condition, S&P said.
Moody’s Thursday affirmed the Ba2 rating it assigned after a multi-notch downgrade early in the week.
Moody’s also cut Stockton’s water enterprise bonds to Ba3 from A3, its sewer enterprise bonds to Ba1 from A2, and the city’s community facility district special tax bonds to Baa2 from A3.
The water revenue bond rating downgrade is a result of the likelihood that $55 million of the bonds backed by a letter of credit could be in default. That’s because the city has stated its inability to pay debts, which could lead the bank holding the LOC to purchase the bonds and demand full and immediate reimbursement.
Moody’s said all of Stockton’s bond remain on review for downgrade.