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Montebello municipal bonds downgraded to junk status

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  • Montebello municipal bonds downgraded to junk status

    Montebello municipal bonds downgraded to junk status
    The move by credit rating agency Moody's may make it more difficult for Montebello to get a loan to keep afloat.

    By Abby Sewell and Jessica Garrison, Los Angeles Times

    May 6, 2011

    Some of Montebello's municipal bonds have been downgraded to junk status, another blow to a city already teetering on the edge of insolvency.

    The interim city administrator has predicted that the general fund will run out of cash if the city does not secure a loan by the end of September. The move by Moody's, a major credit rating agency, will make it more difficult for Montebello to get a loan, experts told city officials.

    Moody's downgraded its rating of the city's 2000 series certificates of participation by two notches to Ba1, meaning that the general fund's long-term obligations are no longer viewed as investment grade. The Ba1 rating is the highest considered to be "junk" status.

    The city's outlook as a bond issuer was downgraded from stable to negative, meaning Montebello may be at risk of a further downgrade.

    "This is a city in a heap of trouble," said Raphael Sonenshein, a political science professor at Cal State Fullerton.

    The general fund owes $16.8 million to the redevelopment agency, and is looking at a $1.2 million current-year budget deficit on top of that.

    Additionally, the state controller's office has announced it will audit the city's finances amid allegations of inaccurate financial statements, and the U.S. Department of Housing and Urban Development has frozen funding to Montebello and demanded that it pay back as much as $5 million in grants due to issues with the handling of the funds.

    City officials also are trying to sort out the full story of about $1 million in bond money that flowed through an off-the-books city bank account.

    In a bid to remain solvent, the City Council voted Wednesday night — the same day Moody's issued its rating downgrade — to hire a financial advisor to help sort out its budget issues.

    Montebello awarded a $50,000 contract to FirstSouthwest to move forward with a plan to keep the city afloat. In a report to the council, the company wrote that the city will need to secure some sort of loan in order for the general fund to pay off the redevelopment loan and continue providing services.

    But FirstSouthwest warned that the bond rating downgrade probably will mean higher interest rates on any future loan the city seeks.

    Councilman Bill Molinari said he expects the city's bond rating will climb again when the council passes a balanced budget with a reserve for the coming fiscal year. He pointed out that the projected general fund deficit for the current year has steadily decreased and revenues hit by the recession are increasing again.

    "It's a very tough time, but we're moving in a very positive direction," he said.

    Councilman Frank Gomez said this is further proof that the council must cut the city's budget.

    "Every day we wait, it gets more difficult to pull the city out of this fiscal crisis," he said. "We need to do something."

    Gomez added that the economic situation alone is not enough to explain the city's problems.

    "You can't blame this on the economy," he said. "That's a bunch of baloney."

  • #2
    I'd love to know what Compton's bonds are worth. Anybody know?

    Comment


    • #3
      Originally posted by RLRay View Post
      I'd love to know what Compton's bonds are worth. Anybody know?
      It likely depends on the specific issue, yield and maturity date.
      Facts do not cease to exist because they are ignored. -- Aldous Huxley
      Two things are infinite: the universe and human stupidity. -- Albert Einstein

      Comment


      • #4
        True, but if the issuer (Montebello/Compton) lacks the creditworthiness and is likely to defalut than all debt issued by them would be considered junk. As DAL mentions maturity date/coupon is crucial. They can't even meet thier short term debt obligations let alone long term. Think of it as your buddy who asks you to buy him a beer, but never paid you back for the one you bought him yesterday.

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        • #5
          BOND NAME: COMPTON CALIF CMNTY REDEV AGY CAP APPREC-TAX ALLOC-SER C
          CUSIP: 204712FF5
          Maturity Date: 08/01/2018
          Coupon 0.00%
          # Current Trades 6

          Next Pay Date 08/01/2011
          Yield Range -
          Day High Low 60.67-57.95
          Volume 75,000
          Avg Vol 25,000
          Market Sector Redevelopment Agency
          State California
          Estimated Price $60.67 (Type 1)
          In Default No
          Dated Date 07/27/1995
          Other officer: Oh that's right, I forgot, you're God's gift to police work.
          Me: At least someone recognizes it.

          Turns out basic police work isn't so hard, you just have to leave the station.

          Comment


          • #6
            ^ ^ ^ ^

            That's a redevelopment agency bond, which is different from a City of Compton bond, and has different risks. It also is a zero-coupon bond, which means that it does not pay interest. In essence a buyer would pay $60 or so in the hope of getting paid $100 in 2018. That is an implicit interest rate of about 7.2%.
            Facts do not cease to exist because they are ignored. -- Aldous Huxley
            Two things are infinite: the universe and human stupidity. -- Albert Einstein

            Comment


            • #7
              I couldn't find any currently issued city bonds. Only the RDA bonds.

              If someone has the CUSIP number I can research it and post the info. But I suspect no one here really cares enough or could do it themselves.
              Other officer: Oh that's right, I forgot, you're God's gift to police work.
              Me: At least someone recognizes it.

              Turns out basic police work isn't so hard, you just have to leave the station.

              Comment


              • #8
                I couldn't find more thant a handful of bonds issued by the city either. Probably because RDA bonds are much easier to get issued in the first place. You need voter approval to issue General Obligation Bonds...RDA' s do not. Usually a majority vote of the city council is sufficient...look at Bell. I am sure it's not hard to find a delapidated apartment complex or building in Compton where they could tear it down and build a Costco or Walmart and call it "blight" either. That's there only way of issuing new debt in most cases, and unfortunately this is where the money to pay police, fire etc. comes from. Bottom line is both these cities and many others are in bad shape.
                Last edited by chrgr8; 05-08-2011, 10:55 PM.

                Comment


                • #9
                  Standard and Poors just downgraded Compton's rating from AAA - (minus) to BBB-(minus) because of all of the deficit spending. The city is on the verge of insolvency and bankruptcy.

                  Comment


                  • #10
                    Originally posted by RLRay View Post
                    Standard and Poors just downgraded Compton's rating from AAA - (minus) to BBB-(minus) because of all of the deficit spending. The city is on the verge of insolvency and bankruptcy.
                    Time to form a police department!
                    Facts do not cease to exist because they are ignored. -- Aldous Huxley
                    Two things are infinite: the universe and human stupidity. -- Albert Einstein

                    Comment

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