Victorville credit ratings suspended
S&P downgrades bonds to junk status
April 20, 2009 2:15 PM
BROOKE EDWARDS Staff Writer
VICTORVILLE • Defaults, too much debt, a depleted general fund and too many inter-fund loans led Standard & Poor to suspend credit ratings for several Victorville bonds.
Standard & Poor's Rating Services also changed bonds from the city's Redevelopment Agency and Southern California Logistics Airport Authority to "junk" status this week to match the rating for the bonds' insurer Syncora Guarantee Inc.
Bonds for both agencies were dropped to a CC Negative, meaning they may face further downgrades. Another dip to a C, and both of these bonds will be at a rating S&P says are typically used "to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued."
The suspension came after S&P reviewed Victorville's financial status and found what it considers "significant unfunded obligations outstanding and a practice of making inter-fund loans and transfers," according to a report from the New York-based company.
Inter-fund loans totaled $17.3 million as of the last audited budget end- ing June 2007, with the sanitary district loaning money to the general fund and the general fund loaning money to the city's utility department.
“We believe these transfers raise questions about the liquidity in the agency, authority and district’s funds, and whether they remain sufficient to support debt service payments,” the report states.
Another major concern for the agency is the city’s $83 million outstanding bond for the failed Foxborough power plant, which is now in default. As a result, the report states, “the bank could require full payment at any time.”
S&P also cites the city’s $126 million liability to General Electric and an impairment loss of $36 million for hangars at SCLA.
“We believe that this variety of loans and losses make it even more important that we have access to and are able to review up-to-date and accurate financial statements in order to properly assess financial flexibility and strength of the city...” the report says.
With the 2008 audit now nearing four months late and the auditors issuing no opinion on the 2007 finances, S&P said the bonds will be listed as “NR,” or no rating, until reliable financial statements are available.