Stockton’s vote on Tuesday to authorize the city manager to seek bankruptcy protection has its first potential repercussion. Fitch has downgraded the city’s outlook to negative. Its already-issued water bonds are now classified as “junk.”

The downgrade will affect more than $252 million worth of water bonds that were used to finance a project that will provide water from the delta to Stockton residents. But the larger shift to a “negative watch” is a warning sign that the agency may further downgrade other bonds from the city.

“The city’s actions in recent months, including the initiation of the confidential mediation process … and the recent City Council resolution authorizing a Chapter 9 contingency plan, call into question the city’s ultimate willingness to pay debt service,” Fitch reported.

From the Record

A Wall Street investment ratings firm downgraded more than $252 million worth of Stockton water bonds Wednesday to below investment grade, a status commonly called “junk bond.”

Fitch Ratings cited its downgrade as the result of the City Council’s vote Tuesday authorizing the city manager to file for Chapter 9 bankruptcy if Stockton fails by June 25 to successfully restructure its ailing finances.

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