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UPDATE 1-S&P cuts San Bernardino, Calif., refunding debt to 'CC'
July 11, 2012 / 11:35 PM / 5 years ago

UPDATE 1-S&P cuts San Bernardino, Calif., refunding debt to 'CC'

* Bond rating cut to speculative grade “CC” from “BBB+”

* City may not have sufficient funds for obligations-S&P

SAN FRANCISCO, July 11 (Reuters) - Standard & Poor’s Ratings Services downgraded on Wednesday the San Bernardino, California, series 1997A lease revenue refunding bonds to speculative grade ‘CC’ from investment grade ‘BBB+’ a day after the city’s leaders approved a plan for a Chapter 9 bankruptcy filing.

S&P said in a statement that it also placed the rating on its CreditWatch with negative implications for further downgrades.

S&P said it is concerned San Bernardino does not have sufficient funds to meet it obligations in coming months.

“We believe this could affect the city’s ability to pay to the trustee the next lease payment, which supports its 1997A lease revenue bonds,” S&P said, noting the next payment to bondholders on the debt is scheduled for September 1.

S&P said it was uncertain whether San Bernardino plans to use general resources or its debt service reserve fund to meet its upcoming debt service payment if it has not filed for bankruptcy by September.

San Bernardino’s city council voted on Tuesday night to file for Chapter 9 bankruptcy, marking the third time in recent weeks a city in the most populous U.S. state has opted to seek protection from its creditors.

The decision followed a report by city staff that said the city faced an imminent financial crisis.

The report said San Bernardino, a city of about 210,000 residents approximately 65 miles (104 km) east of Los Angeles, had exhausted its reserves and projected that spending would exceed revenue by $45 million in the current fiscal year which began on July 1.

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