Standard & Poor's on Tuesday affirmed its AA rating on Connecticut's $15 billion of general obligation debt and assigned its AA long-term rating to the state's $570 million of GOs, Series 2012 D, E and F. The outlook is stable.
Proceeds will fund authorized capital requirements and will refund certain bonds outstanding.
"The AA ratings reflect what we view as Connecticut's substantial and diverse economic base, which is expanding modestly, and high wealth and income levels," said Standard & Poor's analyst Robin Prunty.
The rating agency cited Connecticut's capacity to adjust revenues in the face of budget volatility, active monitoring of revenues and expenditures to identify gaps, and its operating liquidity despite recent budget shortfalls and reduced reserves.
Standard & Poor's, however, warned about Connecticut's history of cyclical budgets and issuing excessive debt during recessionary periods. "Connecticut's above-average debt levels and significant unfunded postretirement liabilities also affect our opinion of its creditworthiness," the agency said.
The agency, however, expects Connecticut to keep adjusting its budget over the two-year outlook horizon.
"We believe that the higher leverage from the issuance of economic recovery notes creates cost pressures in the near term, and that the depletion of the budget reserve fund has diminished the state's financial flexibility. Despite these generally negative credit trends, Connecticut has historically managed budget pressures, and above-average leverage and revenue volatility have been factors at the current rating level over time," Standard & Poor's said.
Fitch Ratings and Kroll Bond Rating Agency also assign AA ratings to the state's GO bonds, while Moody's Investors Service, in a move state officials criticized, downgraded the state to Aa3 from Aa2 in January, citing high debt as well as pension and other post-employment benefit liabilities.
