Moody's Investors Service said it has downgraded the town of Middletown, Del.'s general obligation rating to A2 from A1; the outlook remains negative.
The town has $42.7 million of outstanding debt, of which $20.9 is rated by Moody's.
The bonds are secured by the town's general obligation unlimited tax pledge.
The downgrade to A2 reflects the town's challenged financial position evidenced by a negative general fund balance in fiscal 2012 and declining financial flexibility in the operating funds. The rating also incorporates the town's limited tax base with average wealth levels and a high debt burden.
The negative outlook reflects Moody's expectation that the town will remain challenged to restore fiscal stability in the general fund over the near term, due to a decline in fee revenue and continued pay-go capital spending.
