Moody's Downgrades Los Angeles From Aa2 To Aa3

It's getting ugly outhere.

Moody's Investors Service has downgraded to Aa3, from Aa2, the rating on the City of Los Angeles' general obligation bonds.

Moody's stated:

The downgrade primarily reflects the continued erosion of the city's historically better-than-average willingness and ability to quickly rebalance its budget mid-year. This is a particularly important rating factor for Los Angeles since its balance sheet has typically been relatively weak for the rating level. The downgrade also partly reflects the likelihood that the city's general fund reserves at the end of the current fiscal year could be materially weaker than we had previously expected, now that an expected transfer from the Department of Water & Power may be reduced. The loss of these DWP funds would, at a minimum, make the city's planned rebuilding of its budgetary reserves over the next few years more difficult, if only because it would likely be starting from a weaker position. Given the likely difficulty in rebuilding reserves according to the city's three-year plan--particularly in the current economic environment--our rating outlook for the city's general obligation and general fund ratings remains negative. The downgrade primarily reflects the continued erosion of the city's historically better-than-average willingness and ability to quickly rebalance its budget mid-year. This is a particularly important rating factor for Los Angeles since its balance sheet has typically been relatively weak for the rating level. The downgrade also partly reflects the likelihood that the city's general fund reserves at the end of the current fiscal year could be materially weaker than we had previously expected, now that an expected transfer from the Department of Water & Power may be reduced. The loss of these DWP funds would, at a minimum, make the city's planned rebuilding of its budgetary reserves over the next few years more difficult, if only because it would likely be starting from a weaker position. Given the likely difficulty in rebuilding reserves according to the city's three-year plan--particularly in the current economic environment--our rating outlook for the city's general obligation and general fund ratings remains negative.