Feb 26 Moody's Investors Service on Tuesday said it cut California's San Bernardino County pension obligation bonds to A1 from Aa3.
Moody's also affirmed the county's Aa2 issuer and A1 lease obligation rating and stable outlook.
The downgrade reflects Moody's changed view of the pledge supporting the underlying payments by the county. "We believe this pledge is relatively less secure than our prior estimates, both in terms of probability of default and likely losses in the event of default," the rating agency said.
Under California law, the county must raise property taxes by whatever amount necessary to repay the general obligation bonds, irrespective of the county's general financial position, the rating agency said.
The county's pledge to repay its debt issued to refinance pension liabilities or to honor its lease obligations, however, is a contractual obligation, on parity with the county's other unsecured obligations.