MOODY'S ASSIGNS MIG 1 RATING TO LOS ANGELES' 2010 TRANS

Posted on: June 23, 2010, 2:29 pm

NEW YORK, Jun 23, 2010 -- Moody's has assigned a MIG 1 rating to the City of Los Angeles' 2010 Tax and Revenue Anticipation Notes. As it did last year, the city has structured its annual cash flow borrowing as three separate notes. The maturities for these notes are March 31, May 31, and June 30, which for each note is one month later than last year. While this serial maturity structure is somewhat weaker than the traditional single TRAN with a June 30th maturity, coverage from projected cash flows in the relevant months is reasonably strong. This in combination with the other short-term strengths discussed below supports the MIG 1 rating assignment. The relative weakness of the serial structure results from the substantially reduced time between the scheduled note repayment set-asides and the notes' maturity dates. For two of the maturities this cushion is only one month, leaving little time for adjustment should projected receipt and disbursement timing not occur as planned. Overall we believe the city's cash flow and budget uncertainties for the coming fiscal year are reasonably modest for a MIG 1 rated TRAN, but with the potential for a continuing recession and the city's weaker budget reserve position, this year's uncertainties are higher than in most prior years, with the likely exception of last year. The fiscal year just completed was particularly challenging for Los Angeles. While the economic downturn proved deeper than anticipated, sharply weakening the city's revenues, the city also compounded the challenge by including in its budget significant, unspecified labor cost savings which proved difficult to realize. The current year's projected labor cost savings are much more concretely defined, providing greater assurance that the city will meet its projections in the coming year. The 2010 TRANS are general obligations of the city payable from unrestricted receipts received in or attributable to Fiscal 2011. Roughly one-third of the TRAN proceeds will be used to address the city's mid-year, general fund cash flow needs and two-thirds will be used to pre-pay its full, annual pension contribution at the beginning of the fiscal year. Moody's rates the city's unlimited tax general obligation bonds Aa2 with a negative outlook...

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