Moody’s warns on California city defaults

Source: Financial Times

Moody’s has unveiled a sweeping review of its ratings of California cities, warning of rising default risk on debt issued in the state, while rival Standard & Poor’s has downgraded one of the state’s largest cities.

Moody’s move comes after three California cities –Stockton, Mammoth Lakes and San Bernardino –filed for bankruptcy this summer, raising concerns about the outlook for the $4tn municipal bond market.

Local governments across the US have been under pressure since the 2007 recession undercut revenues, but California has been particularly hard hit because it was at the epicentre of the housing boom and subsequent bust. Moody’s also said that the state had a “hands-off” policy with regard to the fiscal problems of local governments.

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