Reuters: Bankruptcy News: Fitch downgrades $252 mln of Stockton, Calif., debt

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Fitch downgrades $252 mln of Stockton, Calif., debt Jun 6th 2012, 18:57 SAN FRANCISCO, June 6 | Wed Jun 6, 2012 2:57pm EDT SAN FRANCISCO, June 6 (Reuters) - Fitch Ratings downgraded on Wednesday more than $252 million of Stockton Public Finance Authority debt after the cash-strapped city voted to allow the city manager to file for Chapter 9 bankruptcy protection if necessary. Stockton, located about 85 miles east of San Francisco in California's Central Valley, is in confidential talks with its creditors to obtain concessions to help close a $26 million budget gap before the July 1 start of its next fiscal year. Stockton has seen its credit rating slashed since its leaders said in February they would pursue a financial restructuring plan that includes defaulting on some debt payments and seeking mediation with creditors. The talks do not preclude a bankruptcy filing for Stockton. Its spokeswoman last week said the city council would consider granting the city manager authority for a filing, a move endorsed by an overwhelming vote of the council on Tuesday night. That vote triggered Fitch's downgrade. "The city's actions in recent months, including the initiation of the confidential mediation process, unscheduled debt service reserve draws on certain general fund obligations, and the recent city council resolution authorizing a Chapter 9 contingency plan, call into question the city's ultimate willingness to pay debt service on system obligations," Fitch said in a statement. Fitch lowered $55 million variable rate demand water revenue bonds, series 2010A, to BB-plus from BBB-minus; $24.2 million of 2005 water revenue bonds, series A, to BB-plus from BBB-minus; and $18.6 million water revenue bonds, series 2009A, to BB-plus from BBB-minus. Additionally, Fitch lowered $154.6 million water revenue bonds, series 2009B taxable Build America Bonds, to BB-plus from BBB-minus. All of the debt remains on rating watch negative, a warning that further downgrades are possible. The housing market's steep downturn in inland California slashed Stockton's revenue, forcing more than $90 million in spending cuts over the last three years, but they have not been enough to keep the books balanced. (Reporting By Jim Christie; Editing by Leslie Adler) Link this Share this Digg this Email Reprints

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