LOS ANGELES -- Moody's Investors Service yesterday lowered its rating on Los Angeles general obligation bonds to Aa1 from Aaa, citing the effects of a severe economic downturn.

"The current economic downturn has proven to be deeper and more prolonged than any other since World War II," Moody's said in a release. "While Los Angeles has shown resiliency during past recessions, a local recovery does not appear likely before 1994 and even so, a sluggish rebound is expected at best."

Los Angeles has about $315.3 million of GOs outstanding, including a $178.4 million offering scheduled for sale today, a Moody's official said.

Moody's also downgraded various Los Angeles lease obligations. The ratings were lowered to A1 for obligations previously rated Aa, and cut to A for those that had been rated Al.

Moody's also downgraded the city's judgment obligation bonds to Aa from Aa1.

Los Angeles has about $1 billion of lease obligations outstanding, but the downgrades only cover about $800 million of them because two certificate of participation issues totaling about $210 million are insured. The lease ratings based on bond insurance remain at triple-A levels.

A recent weakening of the city's financial position contributed to the downgrade, Moody's said.

"The city's revenue base has eroded in recent years, primarily reflecting the recession's impact on economically sensitive revenues within the city's revenue base," the rating agency said, adding that the budget will remain strained for at least another year.

Despite the financial deterioration, Moody's also noted that Los Angeles retains many "continuing strengths" reflecting a broad and diverse economic base. The city also enjoys strong financial management, operating flexibility, and favorable debt levels, the rating agency said.

Moody's last adjusted the city's GO rating in March 1974, when it upgraded the bonds to Aaa from Aa. The Moody's downgrade is "really not coming as a huge shock," a California-based trader said yesterday, observing that "psychologically, people sort of built it in." Accordingly, the interest-rate penalty for the city might amount to only a few basis points, the trader said.

Standard & Poor's Corp. yesterday maintained its AA rating on the city's GO bonds and also kept its ratings on Los Angeles certificate of participation issues at current levels.

But Standard & Poor's also maintained its negative outlook on the ratings and cautioned that it is monitoring the city for some sort of improvement in coming months.

"Maintenance of the current rating will depend on how extensive the economic restructuring becomes, whether the area shows improvement over the next year, and how well the city manages to align revenues and expenditures in a long-term, ongoing fashion," Standard & Poor's said in a release. Standard & Poor's said almost all sectors of the area economy are showing losses, "with total non-agricultural employment down 2% between May 1992 and May 1993."

Retail sales also slumped in 1991 and 1992, although "there is some tentative suggestion of a stronger 1993," Standard & Poor's said. in the face of such problems, "the city administration reacted quickly to the deepening recession" with moves that included a hiring freeze, delays of capital projects, and tax and fee increases, the rating agency said.

Los Angeles "retains a significant degree of financial flexibility," Standard & Poor's said, but it cautioned that "the emerging economic realignment in the region is likely to make future reserves thinner and operating margins tighter."

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