Tuesday, February 23, 2010

Like California, Los Angeles' Bond Rating Lowered

Following the lead of credit rating agencies Moody's and Fitch, Standard & Poor's lowered Los Angeles' bond rating today.

Plagued by a $212 million debt, as well as plunging tax revenues, Los Angeles finds itself in a precarious position. The lowered rating will cost the city millions in additional borrowing costs.

Things are so bad that last week the city announced plans to eliminate 4,000 workers. Though the layoffs are projected to save as much as $300 million, analysts fear that the savings will be offset by the city's still excessive spending.

S&P downgraded Los Angeles from AA to AA-minus. That will increase interest rates for city bonds. Over the next few months, Los Angeles is expected to issue $70 million in bonds to pay for various legal judgements.

Moody's view of Los Angeles had already dropped from "stable" to "negative" last week.

S&P's move came just weeks after it lowered California's bond rating. Already lower than any other state in the union, California's rating was dropped yet again as it remains mired in a massive budget deficit of $20 billion.

The agency lowered the state's general obligation bond rating from A to A-minus. It says it has a negative outlook on California's debt, an indication that it may yet lower the state's bond rating even further.

The state's borrowing costs have increased, and Gov. Schwarzenegger is seeking $7 billion in assistance from te federal government, which has its own staggering debt problem.

S&P’s cut brings it in line with Moody’s rating of Baa1 and Fitch's BBB.

According to the state Treasurer’s office, Moody’s assessment of California’s debt is just three steps above so- called junk, or non-investment grade. Meanwhile, Fitch's rating is now just two steps above junk.

State budget officials have already said they may delay paying some of the state’s bills in March because the state's cash balance will dip below the $2.5 billion cushion they like to maintain.

California Treasurer Bill Lockyer warned that California may need to delay or shut down thousands of infrastructure projects if budget problems prevent it from raising additional funds from investors.

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