Bloomberg News

Stockton Gets Ratings Cut by Moody’s as Bankruptcy Option Looms

March 27, 2012

Stockton (3654MF:US), the California city on the brink of bankruptcy, had its pension-obligation and lease- revenue bond ratings cut by Moody’s Investors Service on about $341 million in debt.

Moody’s lowered the city’s 2007 pension-obligation bonds to B3 from B1 and reduced the 2006 lease-revenue bonds to Caa1 from B2, the New York-based rating company said today in a statement. The ratings are six and seven levels below investment grade, respectively.

The action “reflects the growing likelihood of default and the potential for less than 100 percent recovery for bondholders as the city continues down the path of mediation and potential bankruptcy,” Moody’s said in the statement.

The Stockton City Council on Feb. 28 agreed to invoke a new California law that requires cities to negotiate with creditors before seeking bankruptcy. Stockton, an agricultural center about 80 miles (130 kilometers) east of San Francisco, was forced down that path because of soaring retiree costs, accounting blunders and the weight of the recession, City Manager Bob Deis has said.

To contact the reporter on this story: Alison Vekshin in San Francisco at

To contact the editor responsible for this story: Mark Tannenbaum at

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