More Hercules Bonds Downgraded

Standard & Poors, a leading municipal credit agency, Tuesday slashed its ratings on three Hercules Public Financing Authority revenue bond issues from a respectable “A-“ to junk status of “BB,” and further placed the bonds on negative credit watch.  

At the same time S&P placed the city’s “A” rated wastewater revenue bonds on a credit watch with negative implications which the agency said reflected the “comingling of wastewater enterprise cash in the city’s pooled cash fund.”  

“We base these rating actions on our assessment of city officials' statements indicating that Hercules could file for bankruptcy without $4 million of redevelopment agency increment revenue and a lawsuit filed by Ambac Assurance Corp…” said S&P credit analyst Sussan Corson said in a statement.     

Ironically city council members are scheduled to hold a public study session on wastewater and discuss a plan for the city’s financial recovery beginning at 6:30 p.m.  

*** See Patch's Crisis in Hercules ***

Today’s downgrades follow downgrading $117 million in redevelopment tax allocation bonds to the bottom of the junk bond heap after Hercules was forced to rely on bond insurance to meet its full Feb. 1 principal and interest payments. Those bonds had been issued by the Hercules Redevelopment Agency, which ceased to exist last week under a new state law abolishing redevelopment agencies across the state. The RDA bonds were secured by a pledge of additional property tax revenues generated by the increased value of redeveloped land.  

All four bond issues involved in today’s rating actions were revenue bonds issued by the Public Financing Authority, a legally separate entity formed as a Joint Powers Authority by the city and its former RDA as a vehicle to issue debt secured by revenues from various municipal operations. City council members are the PFA’s board of directors.  

The bonds involved in S&P’s actions Tuesday are:    

- A 2003B lease revenue bond issue in the amount of $9,150,000 to pay part of the public library construction costs and to refinance debt from 1994 used to pay for various capital improvement projects. Security for this bond issue were rental payments on civic center made by the city to the PFA.      

- The 2009 Bio-Rad taxable lease revenue bonds were issued in the amount of $10,080,000 to acquire commercial condominium property on Linus Pauling Drive that was leased to Bio-Rad, with the lease payments pledged as security.          

- The 2010 Electric System Revenue Bond issue was in the amount of $5,775,000 million primary to construct a new substation that was subsequently never built. Also in 2010 a second, $7,425,000 revenue bond issue was sold to refinance earlier bonds issued in 2003.           

- The 2010 Wastewater Revenue Bonds were issued in the amount of $11.765,000 to finance upgrades of the city’s sewer system and cover expenses incurred in connection with potential additional capital improvements.