Moody’s Downgrades General Obligation Debt
On March 15 a second ratings firm – Moody’s – downgraded New Britain’s General Obligation Bond Rate. In October Fitch downgraded the City from A+ to AA- and Moody’s has followed suit going from A2 to A1.
Both rating agencies pointed to outstanding general obligation bonds. Moody’s said the downgrade will affect approximately $202 million of outstanding debt.
“The outlook has been revised to stable from negative,” said Moody’s in their release. “Concurrently, Moody’s has assigned an A2 rating to $19.2 million General Obligation Bonds, Issue of 2013, and an MIG 1 rating to $25.3 million General Obligation bond anticipation notes (BANS). The bonds and notes are secured by the city’s general obligation unlimited tax pledge. Proceeds from the bonds and notes will be used to finance various city and school capital needs.”
The City has relied on borrowing from the water department. Mayor Tim O’Brien has used between $10 and $16 million from this fund. Around $5 million also had been used by previous administrations.
“During my tenure as Mayor of the City we worked tirelessly to change our fiscal policies and practices to get positive results from the various rating agencies. We received several upgrades and very positive rates as a result,” said former Mayor Tim Stewart. “This present downgrade is an indication that the O’Brien administration is failing on the financial front. They have jeopardized the city’s future with bad fiscal policy and an unwillingness to address their self created budget shortfalls. As a result of this the city will have a more difficult time in selling their annual bonds to investors in the marketplace. This has nothing to do with previous years, but is a snapshot of the city’s present day financial health and it appears to Moody’s to be poor at best.”
Mayor Tim O’Brien refused to comment.
“The downgrade to A2 from A1 reflects the city’s narrowed financial position resulting from several years of structurally imbalanced operations, which is exacerbated by limited revenue raising flexibility and ongoing expenditure demands,” said Moody’s. “The downgrade also incorporates the city’s moderately sized tax base with socioeconomic indices that are well below the state and national medians. Further, the A2 rating reflects the city’s elevated debt burden, which is slightly skewed upwards due to the issuance of pension obligation bonds. The stable outlook is based on Moody’s expectation that the city will continue to exhibit credit characteristics that are consistent with the A2 rating category.”
Moody’s said the City strengths include a sizeable tax base and an ability to levy unlimited taxes.
Its challenges include a history of structural imbalance has resulted in narrowed liquidity, an elevated debt burden and below average wealth and income levels.
Several things could bring the rating back up, according to Moody’s, including:
• Return to, and maintenance of structurally balanced operations
• Improvement in General Fund balance and liquidity
• Reduction of outstanding debt
• Sizeable tax base growth and improved demographic profile
But ratings could go down if there is a:
• Protracted structural budget imbalance
• Reduction of General Fund balance and liquidity
• Significantly increased debt position
• Deterioration of the city’s tax base and demographic profile