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Credit Rating Agency Warns Of More California City Bankruptcies, Bond Defaults

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California State Capitol in Sacramento (Justin Sullivan/Getty Images)

California State Capitol in Sacramento (Justin Sullivan/Getty Images)

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SACRAMENTO (CBS/AP) — One of the nation’s top credit rating agencies will begin a wide-ranging review of municipal finances in California because of what it sees is a growing threat of increased city bankruptcies and bond defaults.

Moody’s Investors Service issued a report Friday saying that the growing fiscal distress in many cities in the nation’s most populous state was putting bond holders at risk.

It noted that some municipalities were considering bankruptcy as a new strategy to address budget deficits and avoid obligations to bond holders. That emerging dynamic could have ripple effects throughout the investment community.

Three California cities have filed for bankruptcy this year: Stockton, San Bernardino and Mammoth Lakes.

Moody’s said it expects “more bankruptcy filings and bond defaults among California cities reflecting the increased risk to bondholders …”

(Copyright 2012 by CBS San Francisco. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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