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California bond rating ranks last in nation

Posted: February 5, 2009 12:38 a.m.
Updated: February 5, 2009 4:55 a.m.

California's reduced bond rating will likely not affect the city of Santa Clarita's rating or bond sales for Hart Union High School District's $300 million Measure SA, but it could place a damper on expansion plans for Henry Mayo Newhall Memorial Hospital.

Henry Mayo Newhall Memorial Hosptital representatives said the cut will not affect the hospital's $300 million expansion master plan the city council adopted in December.

However, it could crimp the expansion project in the future, said hospital Senior Vice President and CFO C.R. Bob Hudson Wednesday.

"California's bond rating does not affect our current outstanding bonds (because) we're locked into a fixed-interest rate," Hudson wrote in an e-mail. "However, it could have an impact on future bond offerings, which are critical to the full completion of the master plan expansion."

Sue Guthrie, Hart Union High School District's chief financial officer, said she received similar feedback from Stone and Youngberg, the underwriting company for the district's bonds.

"(The general obligation bond) is a secure type of investment, so the risk isn't as great," said Guthrie said, who added that bond sales will probably carry on as they have.

The Hart district has yet to sell bonds for the $300 million Measure SA, which local voters passed in November. The bond measure will use the funds to build a high school in Castaic, as well as construct and modernize facilities on existing campuses. The district expects to sell the bonds in three to six months.

But while the district has not yet sold any of its bonds, Guthrie said Stone and Youngberg has assured it is unlikely bond sales will be affected by the cut considering its success with other bond sales. The company recently sold $950 million in bonds for the Los Angeles Unified School District, Guthrie said.

"(They said) there was great market reception and the bond rating from the state of California didn't seem to have much affect," Guthrie said.

City officials do not expect a negative impact from California's low rating.

Santa Clarita has a Standard and Poor grade of AA, one of the highest three grades available, deputy city manager and city treasurer Darren Hernandez said.

"The state's downgrading does not directly impact our credit worthiness or our bond rating," Hernandez said, attributing the positive score to the city's history and strong financial management.

But Hernandez added that the downgrade would definitely affect the state as a whole.

"To the extent the downgrade of the state's bond rating increases the state's borrowing costs and increases the state's deficit, that obviously has a negative impact for all Californians."

Stanford and Poor cut the state's grade for its $46 billion in general obligation bonds by one letter grade making it the lowest rated state in the nation, Bloomberg reported Tuesday. The New York-based rating firm lowered California's grade from an "A-plus" to an "A," the sixth-highest of 10 investment grades.

The firm was compelled to make the grade drop because of the state's inability to reach an agreement on a mid-year budget revision, which leaves California with an unresolved $42 billion deficit, according to the Bloomberg report.

The downgrade placed California, the most populous state and largest tax-exempt borrower, below the level it shared with Louisiana. Bloomberg also reported that that Moody's Investors Service and Flitch Ratings is also considering cutting the state from A1 and A+ grades, respectively.

But holders of California general obligation bonds will gernally go unaffected, the Bloomberg report stated.
On the state level, Standard and poor announced that yields on long-term California bonds fell five to seven basis points Tuesday, confirming investors' expectations. The credit rating firm gave the state a stable outlook and took it off watch for possible further reduction, Bloomber reported.


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