Vallejo, the Northern California city that sought Chapter 9 bankruptcy protection in 2008, is set to sell about $19 million in water-revenue bonds next week in its first municipal-debt sale since the filing.
Proceeds from the deal, scheduled for Oct. 30, will refinance outstanding debt, offering documents show. The water fund from which debt-service payments are made wasn’t impaired in the bankruptcy proceedings, according to the documents. Standard & Poor’s rates the bonds A+, fifth-highest. They will mature from 2027 to 2031,
The offering from Vallejo, a city of about 120,000 in the Bay Area, may serve as an example of how much localities will have to pay for post-bankruptcy access to the $3.7 trillion municipal market. The city officially exited bankruptcy on Nov. 1, 2011.
When Vallejo sought court protection, it was the biggest California city to file Chapter 9. Last year, Stockton, which is more populous, sought court protection. In July, Detroit filed a record U.S. municipal bankruptcy, listing about $18 billion of long-term liabilities. The Motor City suffered from decades of population decline, leaving it too poor to provide services such as public safety and even street lights.
Vallejo’s insolvency stemmed from the housing-market collapse.
The city “continues to have problems with mortgage defaults, foreclosures and underwater mortgages, which will continue to destabilize the local housing market into the foreseeable future,” offering documents said. Such declines “have put a strain on nearly all of the city’s revenue sources,” according to Vallejo’s 2012 financial report.
The last Vallejo issuer to sell debt publicly was the unified school district in 2007, data compiled by Bloomberg show.