More California Cities at Risk of Bankruptcy, Moody’s Says
One of the nation’s top credit rating agencies said Friday that it would begin a wide-ranging review of municipal finances in California because of what it sees is a growing threat of increased city bankruptcies and bond defaults.
Moody’s Investors Service issued a report saying that the growing fiscal distress in many cities in the nation’s most populous state was putting bondholders at risk.
It noted that some municipalities were considering bankruptcy as a new strategy to address budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.
Three California cities — Stockton, San Bernardino and Mammoth Lakes — have filed for bankruptcy this year. Moody’s said they were not likely to be the last.
“To summarize, we expect … more bankruptcy filings and bond defaults among California cities reflecting the increased risk to bondholders as investors are asked to contribute to plans for closing budget gaps,” the report said.