Credit quality of California cities set to improve: S&P

SAN FRANCISCO Tue Jan 29, 2013 3:13pm EST

SAN FRANCISCO (Reuters) - Many of the roughly 200 California cities rated by Standard & Poor's are poised to see their credit quality improve this year, the rating agency said in a report on Tuesday.

"Many of California's cities may experience an economic recovery in 2013 as revenues continue to strengthen," the report said. "While the credit quality of a minority of issuers could decline, many of the state's 202 rated cities that see revenue improvement will likely see credit quality improvement in 2013."

Three cities - Stockton, San Bernardino and Mammoth Lakes - filed for Chapter 9 bankruptcy protection last year, triggering concern in the U.S. municipal debt market that other cities with strained finances in America's most populous state could seek court protection from their creditors.

But there was no contagion as local governments slashed spending to keep their budgets balanced, S&P noted.

"Despite the trio of bankruptcy protection filings in the state last year, most California cities absorbed the impact of the Great Recession and preserved their credit quality," the report said.

"We believe the small number of municipal bankruptcies is a testimony to the resilience of local governments and their ability and willingness to scale back expenditures and align them with lower revenues," the report added.

It noted that 92.5 percent of the California cities rated by S&P carry mid- to high-investment grade ratings while 7.5 percent have low investment or speculative grade ratings.

(Reporting By Jim Christie; Editing by Alden Bentley)

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