S&P; Lowers Simi Valley Rating on Housing Bonds

Standard & Poor’s Corp. has lowered its rating of Simi Valley’s $15 million of single-family housing revenue bonds to D from CC.

The action was largely a formality, because the D rating merely indicates that Simi Valley has defaulted on the bonds, which were issued in 1989. The CC rating meant that S&P; already had viewed the bonds--issued for the purpose of making single-family mortgage loans to residents--as highly speculative.

Simi Valley defaulted because of the problems of Executive Life Insurance Co., which was seized by California insurance regulators in April. After Simi Valley raised the $15 million by issuing the bonds, it placed the money in an interest-bearing guaranteed investment contract (GIC) managed by Executive Life, said S&P; spokeswoman Nancy Olson.

The city would then draw down cash from that account to make its mortgage loans. Interest payments on the loans were, in turn, to be used by Simi Valley to pay back the holders of its bonds.

But when Executive Life was seized in the second-largest U.S. insurance failure in history, regulators froze its GIC accounts and that led Simi Valley to eventually default on the bonds, Olson said.

A French investor group tentatively agreed last week to acquire and reorganize Executive Life, but the agreement made no provision for helping the holders of the insurers’ GICs, which totaled $3 billion.