OREANDA-NEWS. S&P Global Ratings withdrew its long-term ratings on the City of Industry, Calif.'s outstanding general obligation (GO) bonds and lease revenue bonds; before withdrawing, S&P Global Ratings also lowered its ratings on these bonds to 'BBB-' from 'AA' and to 'BB+' from 'AA-', respectively, and changed the outlook to negative.

In addition, S&P Global Ratings placed its ratings on Industry Public Facilities Authority, Calif.'s tax allocation bonds (TABs) and the city's sales tax bonds on CreditWatch with negative implications. The tax allocation bonds are an obligation of the Successor Agency to the Industry Urban Development Agency.

"The withdrawal of the GO and lease revenue bond ratings reflects our view of a lack of sufficient information of satisfactory quality to maintain the ratings," said S&P Global Ratings credit analyst Benjamin Geare.

"The lowered ratings prior to withdrawal reflect a change in our view of the city's management practices, which is based our analysis of the observations of an independent professional services firm and the California State Controller, who found the city's internal controls to be inadequate," continued Mr. Geare. "The negative outlook prior to withdrawal is based on our view of the potential for further deficiencies that could come to light that would lead us to lower the ratings further."

A contract review conducted by an independent professional services firm noted substantial problems regarding city documentation practices and also raised significant questions about city internal controls and the suitability of city payments over a 20-year period. Following release of this report, the California State Controller released a report finding "pervasive and serious deficiencies, with 85 percent of internal control elements deemed inadequate," and recommended that the city develop and implement a comprehensive remedial plan to address noted deficiencies. Since publication of these reports, the city has taken steps to reform the city's financial, contract, and operational management. Although we view the changes the city has initiated--and in many cases already implemented--to be promising, we believe that it will take several years for the city to sufficiently demonstrate its adherence to improved controls in order to restore our confidence in the reliability of the information provided by the city that we would need to maintain a credit rating on city-related obligations.

S&P Global Ratings has not yet determined whether similar concerns affect the reliability of the information we use to rate the TABs and sales tax bonds. After we have further evaluated the practices used to compile critical operating information for the TABs and sales tax bonds, we may lower or withdraw the ratings. This would occur during the 90 days of the CreditWatch horizon, although it is possible that the CreditWatch status could be resolved much sooner.