BREAKUP FEAR BAD FOR L.A. CREDIT BOND RATING OUTLOOK DOWN.Byline: Harrison Sheppard Staff Writer A major bond rating agency on Thursday downgraded the city's credit rating, based on the prospect of the San Fernando Valley San Fernando Valley Valley, southern California, U.S. Northwest of central Los Angeles, the valley is bounded by the San Gabriel, Santa Susana, and Santa Monica mountains and the Simi Hills. seceding from Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. . Because of the unprecedented and uncertain nature of secession secession, in art secession, in art, any of several associations of progressive artists, especially those in Munich, Berlin, and Vienna, who withdrew from the established academic societies or exhibitions. , Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. downgraded the city's bond rating outlook from ``stable'' to ``negative,'' meaning it will be more expensive for L.A. to borrow money. ``There's a lot of uncertainty,'' said Fitch managing director Amy Doppelt. ``There's a fiscal analysis that shows what the impact will be and how it can be mitigated, but that's all based on estimates and projections and forecasts. In my mind, anything this large inherently has unknowns in it. ``Those numbers could be right; they could also be wrong.'' The outlook is a prediction of how the city's bond ratings will look in the near future and is not an evaluation of the current state. The city has retained Fitch, which has offices in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. and London, for the last three years to evaluate its general obligation and judgment obligation bonds - now about $840 million, or one-third of the city's taxpayer-supported bond debt. Other firms evaluate the city's additional bonds, but they have not issued any changes. Mayor James Hahn For the Iowa politician, see . James Kenneth "Jim" Hahn (born July 3, 1950) is an American politician from the Democratic Party. He was the Deputy City Attorney (1975-1979), City Controller (1981-1985), City Attorney (1985-2001) and Mayor of Los Angeles, California said the report reinforces his argument that secession would cause financial harm to Los Angeles. ``It shows the secession movement is already hurting Los Angeles, even before this has been decided to be put on the ballot.'' Richard Close, chairman of Valley Voters Organized Toward Empowerment, questioned the firm's neutrality in making the report, because it is paid by Los Angeles for its evaluations. ``The fact that they're retained by the city makes their report suspect, because they're going to want to get their contract renewed, they're going to need to do what the city wants them to do. This is all part of a scare tactic.'' He noted that the report came out a day after Hahn urged LAFCO LAFCO Local Agency Formation Commission LAFCO Los Angeles Filmmakers Cooperative to reject the secession plan because of the financial consequences, and questioned why the firm didn't wait for LAFCO to make its final decision before issuing its report. Hahn said he was outraged by Close's comment, while the firm's officials noted that the city neither requested nor paid for this particular report. They also said Fitch has a greater obligation to bondholders in the marketplace to be accurate and objective in its evaluations. Doppelt said, ``The only value we provide is because the investors value what we have to say. The city did not pay for this comment in any way, nor did they request it.'' The amount the city pays the firm was not available. The rating for the city bonds' current credit worthiness - as opposed to its future Rating Outlook - remains unchanged. The $765.5 million in general obligation bonds are rated AA, and the $74.8 million in judgment obligation bonds are rated AA-minus. The highest rating is AAA AAA: see American Automobile Association. (Triple A) A common single-cell battery used in a myriad of electronic devices of all variety. Like its double A (AA) cousin, it provides 1.5 volts of DC power. When used in series, the voltage is multiplied. , but the AA rating is still considered ``very high credit quality,'' Doppelt said. City Administrative Officer Bill Fujioka said the firm's outlook report is worrisome and ``hit us out of the blue.'' ``It doesn't have an immediate impact - that's today. It does give me great concern though, because to go from 'stable' to 'negative' is a first step in potentially downgrading downgrading A reduction in the quality rating of a security issue, generally a bond. A downgrading may occur for various reasons including a period of losses, or increased debt service required by restructuring a firm's capital to include more debt and less our rating.'' Doppelt said the $840 million in bonds have already been issued by the city, so downgrading its rating would not hurt the city on those particular bonds, but would affect investors who trade the debt. Instead, the downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. in rating would increase the interest rates on bonds the city sells in the future. |
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