$4.9 million of rated debt affected
New York, July 23, 2012 -- Moody's Investors Service has downgraded to Ba1, from A2,
the underlying rating on the City of Compton, California,
Sewer Revenue Refunding Bonds, Series 1998. The rating remains
on review for downgrade.
RATING RATIONALE
The downgrade is based primarily on the city's severe liquidity
crisis, the risk this raises that the city could seek bankruptcy
protection, and the potential implications of such a development
on timely debt service payments. The sewer enterprise currently
generates more than sufficient net revenues to make debt service payments,
and the Ba1 rating reflects our expectation of full, if not timely,
debt service payment, assuming revenues have been allocated as legally
required. The downgrade also reflects the city's weak internal
controls and management practices, highlighted by the depth of the
liquidity crisis; recent, severe General Fund overspending
relative to budgeted amounts; and allegations of waste, fraud
and abuse of public monies by the city's Mayor. These allegations
undermine our expectation that the city will properly account for and
transfer pledged enterprise revenues to bond trustees consistent with
trust agreements to ensure timely debt service payments. Uncertainty
also derives from the city's inability to produce audited financial
information on a timely basis. The 1998 bonds were originally insured
by MBIA and are now reinsured by National Public Finance Guarantee.
The bonds also benefit from a cash funded debt service reserve held by
the trustee.
The principal methodology used in this rating was Analytical Framework
For Water And Sewer System Ratings published in August 1999. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information,
and confidential and proprietary Moody's Analytics' information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
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be available. Consequently, Moody's provides a date that
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on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Moses Kopmar
Analyst
Public Finance Group
Moody's Investors Service
Public Finance Regional Office
One Front Street, Suite 1900
San Francisco, CA 94111
U.S.A
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Eric Hoffmann
Senior Vice President
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades City of Compton (CA) Sewer Enterprise revenue bond rating to Ba1, from A2; rating remains on review for downgrade