MOODY'S LOWERS CALIFORNIA'S BOND RATING

MOODY'S LOWERS CALIFORNIA'S BOND RATING

Moody's Investors Service cut its rating of California's credit-worthiness, dropping the state's bonds from the much-coveted AAA status.

Moody's drop of the rating Monday to AA-1 follows a similar move by Standard & Poor's Corp.It came a little more than a week before the state is to issue $1.39 billion in new bonds, on Feb. 19. The state has $16.2 billion in general obligation debt outstanding, Moody's said.

A lower rating on bonds - indicating a slightly greater risk to investors - can force issuers to raise their yield, thus costing them more money.

Moody's noted, however, that California's bondholders continue to enjoy ''very high-quality security" despite the downgrade. An AA-1 rating, while not the top, is still considered an indication of a very safe investment.

"The state's recent (budget) deficits have eroded the margins of protection consistent with a (triple A) rating," Moody's noted. It cited ''increased financial pressures, both short and long term" as reasons for its cut.

California's infrastructure needs and the spending demands of its growing population create "an underlying imbalance between ongoing spending and revenue growth," Moody's said.

The ratings agency said the state had the capacity to stabilize its finances in the long term, but it expected the state would struggle to balance its budget in the next several years.

Standard & Poor's cut its rating on California's bonds in December from AAA to AA.