Huntington Park Bond Ratings Called ‘Mistake’ : Investment: The city and an underwriting firm defend redevelopment agency’s ability to service debt on six issues totaling $89 million.

The damage control began shortly after the news reached the financial community on Jan. 28.

Fitch Investors Service of New York had significantly downgraded the ratings of $89 million in bonds issued by the Huntington Park Redevelopment Agency over the past several years. The firm pointed out Huntington Park’s ongoing financial problems, and expressed concern that the recession could make matters worse.

The bonds are now rated as “speculative” investments, which means that bondholders could lose money in selling the bonds.

The city’s bond underwriter, Chilton & O’Connor Inc. of Los Angeles, quickly issued a report on the Redevelopment Agency’s finances to ease the minds of investors. It reported that the Redevelopment Agency will have more than enough money to service the bond debt.

Fitch is the only firm that rates the Huntington Park bonds. Officials for the underwriter and the city said they expect that the lower rating by the small firm will not have the impact of a downgrade by the two major bond-rating firms--Standard & Poor’s Corp. and Moody’s Investors Service.

“I think Fitch made a mistake,” said James K. Chilton, chairman of Chilton & O’Connor. “Most of the bond community has received the fact sheet that we prepared and appears to be comfortable with the numbers.”

A bond dealer with a major investment company said the lower rating would hurt bondholders, but the extent of the damage was not clear. The bond dealer, who said he holds some of the Huntington Park bonds, asked not to be identified.

Six bond issues totaling $89 million were affected. The bonds had carried “investment-grade” ratings ranging from “A” down to “BBB.”

Fitch dropped all of the bonds to “BB,”--one notch below “BBB”--which means they are speculative and there is some question of the ability of the Redevelopment Agency to pay off the interest and principal.

“We’re not saying in any way that those bonds are going to default,” said Fitch senior analyst David M. Breen. “We’re simply saying there are some problems.”

The financial problems that spurred the lower rating have been plaguing the Huntington Park Redevelopment Agency for years. The recession of the early 1980s delayed developments in the city’s three main redevelopment districts, city officials said. Property-tax income lagged as a result.

City officials in 1987 pledged sales tax revenues to ensure repayment of the Redevelopment Agency bonds.

Since then, the city has had to loan its Redevelopment Agency about $4.5 million in sales-tax revenue--which would have been used for general city expenses--to meet the bond payments, according to city financial statements. About $320,000 of that went to repay redevelopment bonds last year, according to city officials.

That drain contributed to the financial problems of the city, which was forced to lay off 25 employees in 1989.

Breen said a continued drain of sales-tax money could cause even more serious problems for the city, affecting the Redevelopment Agency’s ability to repay its debts. “If the economy in the area is affected, you could lose additional revenue,” Breen said.

But city officials and Chilton, the bond underwriter, said Fitch should restore the higher ratings.

They note that the property-tax revenue the Redevelopment Agency is projected to receive this year, plus the sales-tax revenue generated in the redevelopment districts, far exceeds the amount needed to pay the annual bond debt. The revenues are expected to add up to $6.9 million, while the Redevelopment Agency will have to pay $4.3 million on the bond debt.

They also note that the Redevelopment Agency has met its bond debt in the past, even though it deprived the city of sales-tax revenues that could have paid general city expenses, such as salaries.

City officials say the Redevelopment Agency will be relying on less and less sales-tax money as redevelopment zones continue to grow and generate more property-tax revenue.