Moody's: Citi Impasse Negative for Burlington, Vt.

The breakdown in settlement talks between Burlington, Vt., and Citibank over a $33.5 million lawsuit over city-owned Burlington Telecom is a credit negative for Vermont’s largest city, Moody’s Investors Service said Monday.

Last week, federal mediator Richard Cassidy told the U.S. District Court for the District of Vermont in Burlington that talks had broken down. Citibank’s claim is for unpaid portions of a lease-purchase agreement Citi extended to Burlington in 2007 for the city to provide the broadband cable service.

The city ended the agreement in 2010 when it could not make payments on the debt. Citi filed suit late in September 2011.

Burlington wants to settle the case to stabilize its finances. The money in question amounts to 59% of the city’s budget and 214% of its general fund balance according to Moody’s, which rates Burlington’s general obligation bonds Baa3, with a negative outlook. 

“Since negotiations have broken down, the lawsuit will resume in federal court, exposing the city to the full liability as well the accompanying legal costs,” said Moody’s.

The rating agency even compared Burlington to Harrisburg, Pa., where municipal guarantees to bonds issued for an incinerator retrofit crippled the finances of Pennsylvania’s capital city, which is staring at $350 million of debt that it cannot pay.

“Burlington is one of several U.S. municipalities that have experienced severe financial strain because of their financial support of unsuccessful enterprises,” Moody’s said. “Municipalities often guarantee debt or other obligations of public enterprises in order to provide a lower cost service to the public or to stimulate economic development.”

For reprint and licensing requests for this article, click here.
Bankruptcy Vermont
MORE FROM BOND BUYER