STOCKTON, CA - Moody's downgraded Stockton's credit-worthiness Friday to below investment grade, affecting nearly $341 million of debt.
The rating for Stockton's 2007 pension obligation bonds were downgraded to Ba3 and 2006 lease revenue bonds were downgraded to B1.
"Moody's rates over 12,000 municipalities in the United States. Fewer than 30 are currently rated non-investment grade (Ba1 or lower)," Moody's spokesperson David Jacobson said. "With yesterday's downgrade, Stockton is now rated Ba2. The most notable city on the same list is Detroit, which is currently rated Ba3 and is under review for a potential downgrade."
Moody's also downgraded the city's water enterprise rating to A3.
Moody's decision to downgrade Stockton's credit-worthiness comes after city officials said they will vote Tuesday on whether or not to start the 60-day meditation period required before filing for bankruptcy.
During the meditation process, the city would suspend payments to creditors and work with them on payments. Stockton City Manager Bob Dies proposed that payments only be suspended for the rest of the fiscal year and payments would be made through other revenue sources.
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Moody's Senior Vice President Eric Hoffmann said "the proposed suspension and entry into a mediation process demonstrates significantly reduced willingness, if not ability, to make full and timely debt service payments."
"The downgrade also reflects the city's indication that it is in the process of restating prior year audited financial results," Hoffmann added. "While this process is in its preliminary stages and only estimates have been released, the potential for restatement reduces the credibility of the city's financial reporting to date. The preliminary estimates released by the city indicate that adjustment to the city's fiscal 2010 audit report will likely be negative and material."
The highest rating is AAA.
"Moody's currently rates the state of California A1 with a stable outlook," Jacobson said. "California is our second lowest rated state. Illinois, rated A2, is the lowest."
Hoffmann said Stockton's credit rating could be further downgraded if the city files for bankruptcy.
Stockton city councilman Dale Fritchen and the Stockton police union have expressed concern over filing for bankruptcy.
"This will hurt Stockton, hurt my neighbors, my family, and my community," Fritchen said. "I'm putting everything in to make sure this doesn't happen."
In a statement, the union said the city is starting to work its way back financially, but filing for bankruptcy would be disastrous.
"Sales revenues are up and residents' confidence is coming back," the police union said in a statement. "Bankruptcy would send the city spiraling backward with no recovery in sight."
The union is calling for residents to show up at Tuesday night's council meeting and push for a public release of the city's budget.