Bangkok--9 Sep--Standard & Poor's
Standard & Poor's Ratings Services assigned its 'A-' long-term rating to California's estimated $1.3 billion in tax-exempt and $25 million in taxable various purpose general obligation (GO) bonds and its $1.3 billion in tax-exempt GO refunding bonds. At the same time, we affirmed our 'A-' long-term rating and underlying rating (SPUR) on California's existing GO debt and Proposition 1A bonds. The outlook on all ratings is stable.
The ratings reflect our view of the state's:
- Economic depth and diversity, as well as its prominent higher-education institutions, which attract and generate businesses in innovative sectors, helping to position California as a leading venture capital recipient state;
- Improved liquidity compared with recent years and significant cash disbursement flexibility, which enable the state's financial managers to maintain adequate cash for priority payments;
- Governance rules that contribute to fiscal decision making that is at times delayed and suboptimal, in our view;
- Large debt, retirement benefit, and budgetary liabilities, the repayment of which we believe may siphon future state resources and, in the case of the latter set of obligations, not add to the state's asset base or infrastructure.
"In our view, compared with recent years, the state's liquidity is much stronger; moreover, the fiscal 2012 budget could improve the structure of the state's finances by introducing some budgetary reforms and by significantly cutting ongoing expenditures," said Standard & Poor's credit analyst Gabriel Petek. "But, even if some of the budget solutions were to falter or if revenues underperform the state's expectations, our analysis of the state's ability to fund its debt service under its priority of payment structure suggests to us that credit quality remains strong," added Mr. Petek.
The state's general fund serves as the source of all GO bond repayment to which the state has pledged its full faith and credit.
Pursuant to the American Recovery and Reinvestment Act (ARRA), a portion of the state's bonds were issued as federally taxable Build America Bonds (BABs) and qualify for a cash subsidy from the U.S. Treasury equivalent to 35% of the annual interest payments on the bonds.
We understand that proceeds from the current issue will be used to refund the state's commercial paper (CP) and some existing GO bonds.
RELATED CRITERIA AND RESEARCH
USPF Criteria: State Ratings Methodology, Jan. 3, 2011
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Ola Fadahunsi, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Gabriel Petek, CFA, San Francisco (1) 415-371-5042
David G Hitchcock, New York (1) 212-438-2022