S&P affirms California Go debt, warns may downgrade

SYDNEY, July 2 (Reuters) - Standard & Poor's on Wednesday affirmed its ratings on California's general obligation (GO) and lease debt, but kept them on CreditWatch with negative implications. S&P said it saw downward pressure on the state's ratings growing, but its rating opinion also reflects the magnitude of the state's economic base and that flatter or just marginal improvement in the economy may quickly translate to additional revenues.

"Given our view of the state's economic potential as well as its discretion over significant portions of its cash, we continue to view its ability to meet its debt service obligations as generally strong, consistent with Standard & Poor's 'A' rating," the agency said in a statement.

"Should the current impasse over a budget revision remain unresolved long enough that the state's cash management actions no longer are sufficient to effectively insulate its priority payments-including debt service-the state's GO rating will likely be lowered, possibly to below 'A-'," it added.

S&P said its ratings remain A on the state's approximately $59 billion in general fund-supported general obligation (GO) debt and A- on its approximately $8.1 billion in appropriation-backed lease revenue debt.

In addition, the state's $2.0 billion GO-commercial paper rating of A-1 is affirmed and also remains on CreditWatch. (Reporting by Wayne Cole)