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Moody's adjusts perspective on pension obligation bonds
New perspective impacts Solano County’s rating on existing POBs
April 1, 2013
A changed perspective on the overall use of pension obligation bonds resulted in Moody's Investors Service downgrading on March 29 its rating of Solano County’s pension obligation bonds (POB) from A1 from Aa3.
The move was widely expected as the rating agency had previously announced a changed view on the overall use of pledging general fund dollars to support the repayment of POBs versus the issuance of general obligation bonds, which have a dedicated funding source.
Moody’s stated that they believe this pledge for POBs is "relatively less secure than our prior estimates, both in terms of probability of default and likely losses in the event of default."
In the same announcement, the rating agency affirmed the County's Aa2 issuer rating and the County’s A1 certificates of participation (COP) with an outlook of stable.
“While we are disappointed that the County’s POB rating dipped modestly as a result of external market conditions, we are pleased to see that the rating agency recognized our commitment to prudent financial management by reaffirming our Aa2 issuer rating and A1 certificate of participation rating,” said County Administrator Birgitta Corsello.
The new perspective reflects the rating agency’s evaluation of the overall market risk of pension obligation bonds as a financing instrument, and is not necessarily a direct reflection of the County’s credit worthiness.
The review and change in rating criteria for pension obligation bonds by Moody’s Investors Services was prompted by actions of the City of Stockton in its bankruptcy process and other at-risk cities that have issued pension obligation bonds.