A refunding revenue bond issued by the city Redondo Beach is under review for a downgrade on its creditworthiness by one of the nation's leading credit rating agencies, the agency announced in a statement Tuesday.
Moody's Investors Service, which rates 95 California cities, plans to scrutinize various bonds in 32 cities as part of a review that began in mid-August.
"California cities operate under more rigid revenue raising constraints than cities in many other parts of the country," said Senior Vice President Eric Hoffmann, who heads Moody's California local government ratings team, in a statement. "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."
In Redondo Beach, Moody's is looking at a 2008 Series A refunding revenue bond. The $7.7 million bond currently carries an Aa2 rating, meaning it's high quality and subject to very little credit risk.
According to city documents, the bond was issued as part of the South Bay Center Redevelopment Project.
Economic weakening, stagnant revenues and increasing costs, and a decline in a city's general fund balance can all drive downgrades.
According to Moody's, high-profile bankruptcy filings in cities like San Bernardino show that cities' willingness to continue to cut costs may be eroding. Because bond payments also come out of a city's general fund, the payments must compete with other priorities, the company said.
In all, 27 cities' lease-backed obligations paid from the cities' general funds will be reviewed for downgrade. Additionally, the pension obligation bonds of nine issuers were downgraded, and eight of those had already been downgraded.
Nine cities' general obligation ratings are also under review for downgrade; however, the general obligation bond ratings for Los Angeles and San Francisco are under review for upgrades.
Torrance, which currently carries an Aa1 rating, is one of those nine cities at risk of a downgrade to its issuer rating. A downgrade could increase borrowing costs in the city, which in turn could make it more expensive for it to pay for infrastructure projects with bonds.