Moody's downgrades Hartford, CT's GO to A3; outlook negative
Global Credit Research - 24 Jun 2015
Assigns A3 to $76M GO Bonds; city has $434M in GO debt outstandingNew York, June 24, 2015 --
Issue: General Obligation Refunding Bonds, 2015 Series A; Rating: A3; Sale Amount: $55,000,000; Expected Sale Date: 07-03-2015; Rating Description: General Obligation
Issue: Taxable General Obligation Refunding Bonds, 2015 Series B; Rating: A3; Sale Amount: $20,700,000; Expected Sale Date: 07-03-2015; Rating Description: General Obligation
Moody's Investors Service has downgraded to A3 from A2 the rating on the City of Hartford's, (CT) outstanding general obligation bonds, affecting approximately $434 million of outstanding debt. The outlook remains negative. Concurrently, Moody's has assigned an A3 rating to the city's $76 million of General Obligation Refunding Bonds, Series 2015 A and B.
SUMMARY RATING RATIONALE
The downgrade to A3 from A2 reflects: the city's weak financial position which is evidenced by a continued reliance on one-time revenue sources in order to balance the budget; a narrow reserve position following a sizeable deficit in fiscal 2014 and modest expected improvement in fiscal 2015, limited revenue raising ability in the absence of tax increases, and diminished flexibility for future expenditure reductions. The rating also incorporates sizeable pension, OPEB and debt liabilities, as well as the city's standing as the state capital and an important regional economic center, albeit characterized by weak socioeconomic indices.
The negative outlook reflects our expectation that the city will remain challenged to restore fiscal stability over the near term, given its limited revenue raising flexibility, high fixed cost burden and continued reliance on non-recurring revenues. The outlook also incorporates the possibility for downward rating action should the city fail to adopt structurally balanced budgets and augment its slim reserve levels.
WHAT COULD MAKE THE RATING GO UP
• Established trend of structurally balanced operations
• Rebuilding of reserves to adequate levels
• Substantial tax base growth
• Significant improvement in socioeconomic indices
WHAT COULD MAKE THE RATING GO DOWN
• Protracted structural budget imbalance, including reliance on one-time revenue sources
• Reduction of General Fund reserves
• Deterioration of the city's tax base or demographic profile
Hartford is the capital and third largest city in Connecticut, with an estimated population of 124,893.
The bonds are secured by the city's general obligation unlimited tax pledge.
USE OF PROCEEDS
Both the Series A and Series B bonds will be used to restructure certain outstanding maturities from the series 2005C, 2009, 2009A, 2010A, 2011A, 2012A & B, 2013B, and 2014B & C bonds. The restructuring will result in an overall net present value loss of $9 million. On a budgetary basis, the restructuring will provide roughly $42 million in upfront cash flow savings, which will be used to provide budgetary relief in fiscal 2016 and 2017, with smaller savings from 2018 to 2020. From 2021 to 2034 the city will recognize budgetary dis-savings of approximately $52 million.
The principal methodology used in this rating was US Local Government General Obligation Debt published in January 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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Public Finance Group
Moody's Investors Service, Inc.
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Boston, MA 02109