Rebuilding the City’s Credit
By David Huck | Correspondent at December 11, 2023 | 6:15 pm | Print
The Common Council decided on Wednesday night to refinance $40 million in debt in a move that a financial consultant said would help go towards rebuilding the city’s credit rating.
The debt stems from $108 million that was issued in 1998 to pay for outstanding pension obligations. Part of that debt structuring featured variable financing rates which were favorable at the time but are no longer, according to debt underwriter Richard Thivierge of the firm William Blair.
In order to move that debt to a more favorable fixed rate, the Council voted 13-1 to appropriate $56 million, which includes $16 million to terminate the prior contract. Voting against the measure was Alderman Michael Trueworthy. Alderman Jamie Giantonio was absent from the meeting.
By the time the debt is paid off in 2026, the restructuring of the debt will have saved the city around $42,000. But officials said the move would put the city on better financial footing in the more immediate future.
Earlier this year, the city’s credit rating dropped. Currently, Moody’s rates the city “Baa1 stable;” Standard and Poor’s has rated the city “BBB stable,” while Fitch has given the city a “BBB” rating with a negative outlook. “We don’t have a lot of water under the bow,” Thivierge said of the city’s current fiscal standing.
Trueworthy said he didn’t have enough time to digest the information that was provided to council members and suggested waiting on taking any action. But Thivierge noted that financing rates are favorable now and could change for the worse. “Two bad discussions in nine months makes everybody jittery,” Trueworthy said.
“This is being borne by the taxpayers—only the New Britain taxpayers,” said Trueworthy, who as a member of the Bonding Subcommittee also voted against making a neutral recommendation to the Common Council.
“Right now the market is good,” Thivierge said. “I don’t know what the market is going to be when you have more time.”
Thivierge also noted that if the Council didn’t take action, the city would have to post $9 million in collateral in March. “We’re in a progression here,” he said. As the city’s credit rating declines, the more money that has to be put up, Thivierge pointed out to council members.
Trueworthy said he would consider halting previously approved projects that were bonded or to put a one or two year moratorium on all projects. “We can never cut $14 million from our budget,” he said, referring to the $14 to $16 million estimate for switching to a fixed rate.
While Thivierge called the discussion an “uncomfortable” one, he said that by undertaking the refinancing, he was hoping that Fitch’s negative outlook would be removed. While the change won’t bring immediate savings, the city would be able to save money in the future due to lower interest rates.
“We’re trying to say we stemmed the bleeding,” Thivierge said. “I think this is the most prudent action that the city can take at this point.”
In 2015, the city has $55 million in short terms bonds that are maturing and need to be paid off in part or in all, Thivierge said.
Officials noted that with developments such as the busway they are hoping that an increase in economic activity will lead to a lessening of a tax burden on residents.
“This does not solve all the problems of the city of New Britain,” Thivierge said. “It’s a step that helps give us a little more safety, a little more water under the bow.”
Mayor Pro Tem Suzanne Bielinski said she shared in the frustration of other council members hesitant about restructuring the debt, but said the city’s “back is up against the wall.” Looking to future bonding in March, she said she didn’t see any other option.
“We are trying to do what we can to right the ship and prove to the credit agencies that we are a credit worthy city,” Bielinski said. “I’m not happy about this at all.”
When the issue was brought up for a vote in front of the full council, Trueworthy again reiterated his reluctance to the appropriation. “It is an extremely large bond issue,” he said.
Alderman Carlos Carlozzi noted that by restructuring the debt, officials were eliminating variables that “I don’t want the city exposed to.”
Alderman Daniel Salerno said it’s important for the city’s bond rating to go up so that people can look to the city and say that “New Britain is really making a strong effort.”
