Standard and Poors puts California on credit watch

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Standard and Poors puts California on credit watch

By JOHN HOWARD The Associated Press 1/19/01 8:34 PM

SACRAMENTO (AP) -- Wall Street balked Friday at California's attempts to solve the state's deepening power crisis, but stopped short of dropping the state's credit rating.

Standard and Poor's put California's ability to borrow -- the voter-approved general obligation bonds that finance everything from schools to parks to highways -- on a credit watch with "negative implications."

The bond-rating agency said its action did not affect the state's ability to borrow money, nor did it have an immediate impact on the state's credit rating or on the bonds that already have been sold.

But S&P's analysts cautioned that the decision reflected investors' uncertainty over California's attempts to fashion a rescue plan that protected the strapped utilities' fiscal health while assuring that electricity would continue to flow to customers.

Currently, California has $19.3 billion in outstanding AA-rated bonds, including $12.5 billion school and higher education bonds. The highest possible rating is AAA. The bonds required voter approval and are backed by the state's ability to meet its obligations.

S&P suggested that the credit rating could be downgraded in the future, making it more costly for the state to borrow money.

"We're closely reviewing the state's credit. We're closely looking at what the state's long-term solution for the energy crisis," said Steve Zimmerman, managing director of Standard & Poor's.

The state's two big utilities, Southern California Edison and Pacific Gas and Electric Co., have slid toward bankruptcy because they have spent far more on wholesale electricity than they are able to recoup from their 10 million customers. The utilities estimate they have lost more than $11 billion.

In an emergency move, Gov. Gray Davis signed a bill Friday that frees $400 million for the state to buy power on the open market and sell it to utilities.

"That buys (the utilities) some breathing room, but currently, there's no adequate funding source, absent the state," Zimmerman said.

http://www.nj.com/newsflash/index.ssf?/cgi-free/getstory_ssf.cgi?f0421_BC_PowerWoes-Bonds&&news&newsflash-financial

-- Martin Thompson (mthom1927@aol.com), January 20, 2001


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