UPDATE 1-S&P puts some Hercules, Calif. debt on watch negative
Oct 3 (Reuters) - Standard & Poor's Ratings Services placed the 'BB' rating of some Hercules Public Financing Authority, California, revenue bonds on CreditWatch with negative implications, citing uncertainty over the city's willingness to repay some debt. "The CreditWatch placement reflects our uncertainty surrounding the city's willingness to pay its obligations after the city's statement in a September 25, 2012, material event notice," said S&P on Tuesday. The rating agency placed on credit watch with negative implication the 2010 electric system project revenue bonds, series 2012 electric system project revenue refunding bonds, series 2003B lease revenue bonds and series 2009 taxable lease revenue bonds issued for the city of Hercules. The debt service payments of these bonds are secured by a city covenant to advance funds to cover the net electric system revenue. Hercules, about 10 miles south of Vallejo, which last year emerged from three years of bankruptcy, said in its material event notice that it "does not anticipate there will be any available funds to make such advances in the foreseeable future and does not expect to make any such advances." Hercules Deputy City Manager Liz Warmerdam said debt service payments will come from an enterprise fund for the city's Hercules Municipal Utility, which received the proceeds of the two bond series. "We're just saying the city is not going to do it," said Warmerdam, adding that Hercules is trying to sell its utility. "In a best-case scenario we would receive enough proceeds to defease the debt," she said, adding that the utility has about $13 million in outstanding debt. Voters in Hercules in June approved a measure to authorize the sale of the Hercules Municipal Utility so the city will not have to subsidize the utility. Proceeds from the sale would be used to repay the utility's debts and other contractual obligations. Any remaining proceeds would go to the cash-strapped city's general fund. S&P has had Hercules under intense scrutiny this year after a $2.4 million bond payment by its now defunct redevelopment agency went into default. That triggered a lawsuit by Hercules' bond insurer, Ambac Assurance Corp. It claimed redevelopment agency revenue pledged to bondholders had been improperly diverted to city needs. Ambac has settled the lawsuit, noting it received security in two city properties with values estimated in excess of the revenue at issue in the suit. Hercules has suffered a steep decline in revenue in recent years, forcing it to slash its spending, workforce and services. To help fill the city's coffers, voters in June approved a measure to increase the local sales tax in addition to the measure authorizing the sale of their utility.
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