NEW YORK - Standard & Poor's Ratings Services said it lowered its issuer credit rating (ICR) on Stockton, Calif. to BB from A-minus and its ratings and underlying ratings (SPURs) on appropriation debt and pension obligation debt for which the city is obligor to BB-minus from BBB-plus. Standard & Poor's also placed these ratings on CreditWatch with negative implications.
"On Feb. 24, the city released a notice of material event that indicated, among other developments, that it faces an immediate and severe fiscal crisis and that the city is or likely will become unable to meet its financial obligations when due," said Standard & Poor's credit analyst Chris Morgan. "The CreditWatch listings reflect our view of the uncertainty regarding the city's capacity and willingness to meet its obligations," he added.
The material event notice indicates that city staff has recommended that the city council, at its upcoming Feb. 28, 2012 meeting, approve a resolution that will authorize management to prepare for Assembly Bill (AB) 506 proceedings and suspend payments on the city's appropriation obligations that do not have support from non-general fund sources. Depending on the result of the confidential mediation process under AB 506, the city could decide to declare bankruptcy under Chapter 9 of the U.S. Bankruptcy Code.
Standard & Poor's anticipates resolving the CreditWatch listing on Stockton's ICR, appropriation, and pension obligations upon further clarification from the city relating to its intention to file for bankruptcy as well as clarification related to the city's financial position.
Standard & Poor's will continue to monitor developments at the city and with the parties involved, and will take future rating actions on any of the city's obligations as Standard & Poor's considers appropriate in accordance with its criteria.