California Teetering Closer To Junk
NEW YORK: California’s bond rating is far from golden.Citing the Golden State’s ongoing budget upheaval, Fitch Ratings on Monday downgraded California’s long-term debt to BBB, one category above junk bond status. The next step is BBB- before the state’s bonds would be considered speculative debt.Fitch also maintained its so-called negative outlook on California. “[I]nstitutional gridlock could persist, further aggravating the state’s already severe economic, revenue and liquidity challenges,” Fitch wrote.While Gov. Arnold Schwarzenegger and lawmakers battle over closing a 26.3 billion budget gap, the state’s controller last week was forced to issue IOUs for the first time in 17 years. Some county agencies, state vendors and taxpayers are getting paid in paper. The IOUs help the state controller stave off a deficit of nearly 3 billion for July.California has the lowest bond rating of any state, and therefore must pay higher interest rates than its peers when it issues debt.The other two major ratings agencies — Standard & Poors and Moody’s — had previously placed the state on watch for a possible downgrade. They did not follow Fitch’s lead Monday and have maintained California’s ratings at several levels above junk.Moody’s put the state on watch in mid-June after Controller John Chiang warned of the pending cash shortfall. Standard & Poors affirmed its rating last week”We believe California retains the ability to take the actions necessary to meet its debt service payments in full and on time, although we remain concerned about the state’s financial liquidity,” wrote Standard & Poors analyst Gabriel Petek.
Source:CNN
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