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Rating Action:

Moody's reviews ratings of 32 California cities; nine pension bonds downgraded

Global Credit Research - 09 Oct 2012

Approximately $14.3 billion of debt affected

New York, October 09, 2012 -- Moody's Investors Service has placed under review the lease-backed obligation and/or general obligation ratings of 32 cities in California, and has downgraded the pension obligation bonds of eight cities and one pooled financing. The reviews are mostly for downgrade, although the general obligation bond ratings of Los Angeles (Aa3) and San Francisco (Aa2) are on review for upgrade. A total of ten issuers' pension obligation bonds (including the pooled financing) are under review for possible downgrade, including eight that were downgraded with this rating action.

The reviews and downgrades reflect a combination of fundamental economic pressures in the state, the different way in which various revenue sources have been affected and the factors that influence a city's ability and willingness to pay the obligations backed by these revenue sources. Most affect securities that are paid from a city's general funds and do not benefit from a specific pledged revenue source.

Moody's identified these securities as part of an overall review begun in mid-August of the credit standing of 95 rated cities in California.

A full list of ratings affected follows below.

RATING RATIONALE

Today's downgrades and reviews are based on the trends noted in Moody's August 17, 2012 Special Comment "Why Some California Cities are Choosing Bankruptcy." These include the effects of the recent economic and property market downturns, limitations on the cities' ability to raise property taxes, rising fixed costs, and state laws and local precedents that make bankruptcy filings a potentially viable means to address these pressures.

"California cities operate under more rigid revenue raising constraints than cities in many other parts of the country," says Senior Vice President Eric Hoffmann, who heads Moody's California local government ratings team. "Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state's economic recovery tracks the nation's."

A few recent high-profile bankruptcy filings by cities in the state demonstrate that the willingness of some cities to continue to cut costs and associated municipal services to pay debt obligations may be eroding. For the most part, this affects the debt obligations that are paid out of a city's general fund, such as pension obligation bonds and leased-backed obligations, and that must compete with other priorities for payment.

"Many cities' assessed valuations for the property taxes that support their general obligation bonds have declined only modestly in recent years, but their general funds have come under significantly more pressure," Moody's Hoffmann says. "Since the adoption of Proposition 13 in the late 1970's, the cities' inability to access their local property tax bases for increased operating funds led to diversification into even more economically- sensitive revenue sources, such as sales, business and hotel taxes.

These trends have prompted the review for downgrade of 27 cities' lease-backed obligations paid from cities' general funds. The pension obligation bonds (POBs)of nine issuers, also primarily paid from cities' general funds, were downgraded, and eight of these, along with one other city's POBs, remain under review for possible further downgrade. In the event of a default or bankruptcy, lease-backed debt, especially for an essential asset, could be more likely to be paid than pension obligations.

Moody's also placed under review for downgrade the general obligation ratings of nine cities, eight of which are rated in the Aaa to Aa range.

"Although the risks of a general obligation bond default are lower than the risks of a general fund default, they still exist for cities pressured by stagnant revenues and rising fixed costs, and with relatively easy access to bankruptcy protection in California," Moody's Hoffmann says. "These risks may be inconsistent with these cities' current high ratings."

In contrast, Moody's placed the general obligation bond ratings of Los Angeles and San Francisco under review for upgrade as a reflection of significant tax bases that have demonstrated relative resiliency during the economic and property market downturns.

WHAT COULD MOVE THE RATINGS UP OR DOWN

Negative factors that could drive downgrades of California cities include economic weakening, revenues failing to keep pace with expenditure growth, and declines in fund balance. Weakness in general fund finances could also result in a widening of the notching between ratings on a city's POBs and lease-backed obligations and its general obligation rating. Positive factors that could move ratings up include robust tax base growth, a balance between revenue and expenditure growth, and growth in fund balances.

For more information, see today's report "Key Drivers of California Cities' Rating Actions and Reviews" and Moody's August 17 report "Why Some California Cities are Choosing Bankruptcy."

The principal methodologies used in these ratings was General Obligation Bonds Issued by U.S. Local Governments published in October 2009 and The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in October 2004. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

TODAY'S RATING ACTIONS FOR CALIFORNIA CITIES:

AZUSA

Issuer Rating

A2 Rating under review for downgrade

2003 Lease Revenue Refunding Certificates of Participation

$4.8 million

Baa1 Rating under review for downgrade

BERKELEY

2003 Certificates of Participation

$28 million

Aa3 Rating under review for downgrade

2010 Certificates of Participation (Animal Shelter Financing)

$5.8 million

Aa3 Rating under review for downgrade

Lease Revenue Bonds Series 1999

$9.1 million

A1 Rating under review for downgrade

COLMA

Certificates of Participation, 2003

$14.9 million

A1 Rating under review for downgrade

DANVILLE

Certificates of Participation (2005 Capital Improvement Project)

$5.6 million

Aa2 Rating under review for downgrade

DOWNEY

Taxable Pension Obligation Bonds, 2005 Series A

$20.6 million

A2 Rating under review for downgrade (Downgraded from A1/No Outlook)

FRESNO

Taxable Pension Obligation Bonds, Refunding Series of 2002

$205.3 million

Baa2 Rating under review for downgrade (Downgraded from Baa1/Negative Outlook)

Judgment Obligation Refunding Bonds, Series 2002

$5.4 million

Baa2 Rating under review for downgrade (Downgraded from Baa1/Negative Outlook)

Lease Revenue Refunding Bonds (Street Light Acquisition Project), Series 2002

$7.9 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Various Capital Projects) Series 2004A

$15.8 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Various Capital Projects) Series 2004B

$8.1 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Various Capital Projects) Series 2004C (Federally Taxable)

$28.9 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Convention Center Improvement Projects) Series 2006A

$15.4 million

Baa2 Rating under review for downgrade

Lease Revenue Refunding Bonds (Master Lease Projects), Series 2008A

$38.6 million

Baa2 Rating under review for downgrade

Lease Revenue Refunding Bonds (Master Lease Projects), Series 2008C

$36.1 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Master Lease Projects), Series 2008 E

$3.4 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Master Lease Projects), Series 2008 F

$21.4 million

Baa2 Rating under review for downgrade

Lease Revenue Bonds (Police and Fire Master Lease Projects) Series 2009A

$43.4 million

Baa2 Rating under review for downgrade

GLENDALE

Issuer Rating

Aa1 Rating under review for downgrade

Variable Rate Demand Certificates of Participation, Series 2000C (2000 Police Building Project)

$50 million

Aa2 Rating under review for downgrade

HUNTINGTON BEACH

Judgment Obligation Bonds, Series 2004

$12.5 million

Aa3 Rating under review for downgrade (Downgraded from Aa2/No Outlook)

INGLEWOOD

Pension Obligation Bonds, 2005 Series A, Series B and (Forward Delivery) Series C

$65 million

A3 Rating under review for downgrade

Current Interest Refunding Bonds

$18.9 million

Baa1 Rating under review for downgrade

Capital Appreciation Bonds

$11.9 million

Baa1 Rating under review for downgrade

LONG BEACH

Issuer Rating

Aa2 Rating under review for downgrade

Lease Revenue Bonds, 2006 Series B

$24.3 million

A1 Rating under review for downgrade

Lease Revenue Refunding Bonds, 2006 Series A (Rainbow Harbor Refinancing Project)

$50.8 million

A1 Rating under review for downgrade

Lease Revenue Refunding Bonds Series 2003A (Non-AMT) & Series 2003B (AMT)

$120.2 million

A1 Rating under review for downgrade

Lease Revenue and Refunding Bonds (Temple & Willow Facility) 1998 Series B

$29.6 million

A1 Rating under review for downgrade

LOS ANGELES

General Obligation Bonds

$3.17 billion

Aa3 Rating under review for upgrade

Judgment Obligation Bonds, Series 2009-A

$20.5 million

A2 Stable (Downgraded from A1/Stable Outlook)

Judgment Obligation Bonds, Series 2010-A

$50.9 million

A2 Stable (Downgraded from A1/Stable Outlook)

LOS GATOS

Issuer Rating

Aa1 Rating under review for downgrade

2010 Certificates of Participation (Library Project)

$15.7 million

Aa2 Rating under review for downgrade

Certificates of Participation Series 2002 A (Capital Improvement Project)

$10.7 million

Aa2 Rating under review for downgrade

MARTINEZ

Certificates of Participation (2003 Refinancing Project)

$7.8 million

Aa3 Rating under review for downgrade

MONTEREY

Monterey Joint Powers Finance Authority Lease Revenue Dated 3-1-94

$4.1 million

Aa3 Rating under review for downgrade

Lease Revenue Bonds, Series 2002

$9.9 million

A1 Rating under review for downgrade

OAKLAND

Taxable Pension Obligation Bonds, Series 2001

$195.6 million

Aa3 Rating under review for downgrade (Downgraded from Aa2/Stable Outlook)

Refunding Revenue Bonds, 2005 Series A-1 (Auction Rate Securities) (Tax-Exempt); Refunding Revenue Bonds, 2005 Series A-2 (Auction Rate Securities) (Taxable) & 2005 Series B (Auction Rate Securities) (Taxable Bonds)

$145 million

A1 Rating under review for downgrade (Downgraded from Aa3/Stable Outlook)

Lease Revenue Refunding Bonds, 2008 Series A-1 (Tax-Exempt)

$107.6 million

A1 Rating under review for downgrade (Downgraded from Aa3/Stable Outlook)

Lease Revenue Refunding Bonds, 2008 Series A-2 (Federally Taxable)

$20.3 million

A1 Rating under review for downgrade (Downgraded from Aa3/Stable Outlook)

Taxable Pension Obligation Bonds, Series 2012A

$212.5 million

A1 Rating under review for downgrade (Downgraded from Aa3/Stable Outlook)

OCEANSIDE

Taxable Pension Obligation Bonds, Series 2005

$17.7 million

A1 Rating under review for downgrade(Downgraded from Aa3/Negative Outlook)

Taxable Pension Obligation Bonds, Series 2005

$25.1 million

A1 Rating under review for downgrade (Downgraded from Aa3/Negative Outlook)

2003 Certificates of Participation (1993A Refunding)

$25.2 million

Aa3 Rating under review for downgrade

PALMDALE

Certificates of Participation (2002 Park Improvement and Avenue S Construction Project)

$43.2 million

A1 Rating under review for downgrade

PETALUMA

2003 Certificates of Participation (Refunding Certificates and Airport Project)

$6.3 million

Baa2 Rating under review for downgrade

RANCHO MIRAGE

Lease Revenue Bonds, Series 2005A (Public Facilities Project)

$5.9 million

Aa2 Rating under review for downgrade

REDONDO BEACH

Refunding Revenue Bonds 2008 Series A

$7.7 million

Aa2 Rating under review for downgrade

SACRAMENTO

Issuer Rating

Aa2 Rating under review for downgrade

2006 Capital Improvement Revenue Bonds, Series C (300 Richards Boulevard Building Acquisition)

$28.8 million

Aa3 Rating under review for downgrade

2006 Taxable Capital Improvement Revenue Bonds, Series D (300 Richards Boulevard Building Acquisition)

$2.4 million

Aa3 Rating under review for downgrade

2006 Refunding Revenue Bonds, Series E (Master Lease Program Facilities)

$187 million

Aa3 Rating under review for downgrade

2006 Capital Improvement Revenue Bonds, Series A and 2006 Series B Taxable

$151.1 million

Aa3 Rating under review for downgrade

2003 Capital Improvement Revenue Bonds (911 Call Center and Other Municipal Projects)

$68.5 million

Aa3 Rating under review for downgrade

SAN FRANCISCO

General Obligation Bonds

$2.98 billion

Aa2 Rating under review for upgrade

Lease Revenue Bonds, Series 1992 (George R. Moscone Convention Center)

$100.3 million

Aa3 Rating under review for downgrade

Lease Revenue Refunding Bonds, Series 2008-1 (LOC)

$72.6 million

Aa3 Rating under review for downgrade

Lease Revenue Refunding Bonds, Series 2008-2 (LOC)

$72.6 million

Aa3 Rating under review for downgrade

Lease Revenue Bonds, Series 2009 A (Branch Library Improvement Program)

$34.3 million

Aa3 Rating under review for downgrade

Lease Revenue Refunding Bonds, Series 2010-R1 (911 Information and Communications System)

$22.3 million

Aa3 Rating under review for downgrade

Refunding Certificates of Participation, Series 2010A

$138.5 million

Aa3 Rating under review for downgrade

Refunding Certificates of Participation, Series 2011A (Moscone Center South Refunding Project)

$23.1 million

Aa3 Rating under review for downgrade

Refunding Certificates of Participation, Series 2011B (Moscone Center South Refunding Project)

$63.4 million

Aa3 Rating under review for downgrade

Certificates of Participation, Series 2001A (30 Van Ness Avenue Property) and Series 2001B (Taxable)

$37.2 million

A1 Rating under review for downgrade

Certificates of Participation Series 2003 (Juvenile Hall Replacement Project)

$42.0 million

A1 Rating under review for downgrade

2004 Refunding Certificates of Participation (San Francisco Courthouse Project)

$39.7 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2006 (Open Space Fund- Various Park Projects)

$27.0 million

A1 Rating under review for downgrade

Certificates of Participation, Series 2007A (City Office Building - Multiple Properties Project) and Taxable Series 2007B (City Office Building - Multiple Properties Project)

$152.1 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2007A

$11.8 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2007A (Open Space Fund -- Various Park Projects)

$42.4 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2008A

$12.0 million

A1 Rating under review for downgrade

Certificates of Participation, Series 2009 (Laguna Honda Hospital Project)

$163.3 million

A1 Rating under review for downgrade

Certificates of Participation, Series 2009B (Multiple Capital Improvement Projects)

$37.9 million

A1 Rating under review for downgrade

Certificates of Participation, Series 2009C (525 Golden Gate Avenue SFPUC Office Project)

$38.1 million

A1 Rating under review for downgrade

Certificates of Participation, Series 2009D (525 Golden Gate Avenue SFPUC Office Project) (Federally Taxable - Build America Bonds Direct Payment)

$129.6 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2010A (Equipment Program)

$11.5 million

A1 Rating under review for downgrade

Tax Exempt Lease Revenue Commercial Paper Certificates of Participation, Series 1 and T 1 (Bank Bond)

$0.0 million

A1 Rating under review for downgrade

Taxable Lease Revenue Commercial Paper Certificates of Participation, Series 1-T (Bank Bond)

$1.0 million

A1 Rating under review for downgrade

Tax Exempt Lease Revenue Commercial Paper Certificates of Participation, Series 2 and 2 T (Bank Bond)

$0.0 million

A1 Rating under review for downgrade

Taxable Lease Revenue Commercial Paper Certificates of Participation, Series 2-T (Bank Bond)

$1.0 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2011A (Equipment Program)

$14.7 million

A1 Rating under review for downgrade

Lease Revenue Bonds, Series 2012A (Equipment Program)

$9.8 million

A1 Rating under review for downgrade

Certificates of Participation 2012A

$42.8 million

A1 Rating under review for downgrade

SAN LEANDRO

Taxable Pension Obligation Bonds, 2012

$18.3 million

A1 Rating under review for downgrade (Downgraded from Aa3/No Outlook)

SANTA ANA

Certificates of Participation City Hall Expansion Project

$12.5 million

Baa1 Rating under review for downgrade

SANTA BARBARA

Refunding Certificates of Participation (Municipal Improvement Program) Series 2002

$6.3 million

Aa3 Rating under review for downgrade

SANTA CLARA

2002 Refunding Certificates of Participation, Series B

$33.5 million

Aa3 Rating under review for downgrade

2002 Certificates of Participation, Series A (City of Santa Clara Central Park Library Project)

$25.0 million

Aa2 Rating under review for downgrade

Certificates of Participation, Series '97

$16.1 million

Aa2 Rating under review for downgrade

SANTA MARIA

2003 Refunding Lease Revenue Bonds

$23.5 million

A1 Rating under review for Downgrade

SANTA MONICA

General Obligation Bonds

$36.33 million

Aaa Rating under review for downgrade

Lease Revenue Bonds, Series 2002 (Public Safety Facility)

$17.3 million

Aa1 Rating under review for downgrade

Lease Revenue Bonds, Series 2004

$38.9 million

Aa1 Rating under review for downgrade

Lease Revenue Bonds, Series 2009 (Public Safety Facility Project)

$9.2 million

Aa1 Rating under review for downgrade

Lease Revenue Bonds, Series 2011A

$32.4 million

Aa1 Rating under review for downgrade

Lease Revenue Bonds, Series 2011B

$8.8 million

Aa1 Rating under review for downgrade

Lease Revenue Refunding Bonds, Series 2002

$10.5 million

Aa1 Rating under review for downgrade

SANTA ROSA

Issuer Rating

Aa1 Rating under review for downgrade

Pension Obligation Bonds, Series 2003B

$30.2 million

Aa3 Rating under review for downgrade (Downgraded from Aa2/No Outlook)

Certificates of Participation, (Building Acquisition Project), Series 2007

$10.0 million

Aa3 Rating under review for downgrade

SUNNYVALE

Issuer Rating

Aaa Rating under review for downgrade

Certificates of Participation (City of Sunnyvale)

Aa1 Rating under review for downgrade

TORRANCE

Issuer Rating

Aa1 Rating under review for downgrade

Certificates of Participation, Series 2009

$18.9 million

Aa3 Rating under review for downgrade

Certificates of Participation, (Refinancing and Public Improvement Project) Series 2004B

$23.9 million

Aa3 Rating under review for downgrade

Certificates of Participation Refunding, Torrance Public Financing Authority (Police and Fire Station), Series 1998

$10.3 million

Aa3 Rating under review for downgrade

WOODLAND

Lease Revenue Bonds (2005 Capital Projects)

$20.4 million

A2 Rating under review for downgrade

Lease Revenue Bonds (Refunding and 2002 Capital Projects)

$33.2 million

A1 Rating under review for downgrade

CALIFORNIA STATEWIDE COMMUNITIES DEV. AUTH.

Taxable Pension Obligation Bonds, 2004 Series A-1 Bonds (Current Interest Bonds)

$178.6 million

A1 Rating under review for downgrade (Downgraded from Aa3/No Outlook))

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 each of the ratings are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes maintaining these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings 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.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page 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.

Eric S Hoffmann
Senior Vice President
Public Finance Group
Moody's Investors Service, Inc.
One Front Street
Suite 1900
San Francisco, CA 94111
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Naomi Richman
MD - Public Finance
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 reviews ratings of 32 California cities; nine pension bonds downgraded
No Related Data.

 

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