Moody's Investors Service said it has downgraded to Baa1 from A2 the rating on the city of New Britain, Conn.'s outstanding general obligation bonds, affecting approximately $207 million of outstanding debt.
The outlook is stable.
Concurrently, Moody's has assigned a Baa1 rating to $9.7 million general obligation refunding bonds, 2014 Series A. The bonds are secured by the city's general obligation unlimited tax pledge. Proceeds from the refunding bonds will be used to restructure certain outstanding maturities from the series 2006, 2007, 2008 A& B, 2009, 2010A, 2012, and 2013 bonds.
The restructuring will result in an overall net present value dissavings of $228,000, however it will provide roughly $9.5 million in upfront cash flow savings, all of which is budgeted to be used in fiscal 2015, with no extension of maturity.
The downgrade to Baa1 from A2 reflects the narrow financial position resulting from several years of structurally imbalanced operations, and another anticipated deficit in fiscal 2014. Further, a reliance on one-time revenues to supplement the operating budget is a practice that we consider to be unsustainable.
The Baa1 rating also incorporates the sizeable tax base with socioeconomic indices that are well below the state and national medians. Further, the rating incorporates 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 the expectation that the new administration will begin to make the necessary budgetary adjustments and return to structural balance over the near term. The outlook also factors the assumption that significant financial improvement will be difficult given the already slim liquidity levels, and ongoing expenditure demands.
