The insolvent city of Central Falls repaid $4.1 million of tax anticipation notes on time last week, Rhode Island officials said.
The city, which is switching from court-appointed receivership to state receivership, used $3 million of cash on hand and $1.1 million of state reimbursement for school repairs to pay off the notes. Receivership is Rhode Island’s equivalent of bankruptcy.
Last week, the Rhode Island Health and Educational Building Corp. privately placed $4.25 million of qualified school construction bonds on behalf of Central Falls that are secured by an intercept of all state aid due to the city. The corporation issues bonds for school capital projects on behalf of every city and town in Rhode Island, secured by an intercept of state school construction aid.
“We needed to make the banks comfortable that we weren’t relying on the city to make a payment, so that’s why we did the intercept of other state aid,” said the agency’s executive director, Robert Donovan.
Washington Trust Co., a New England-based bank, purchased the bonds with a 6% yield and 10-year maturity. The issuer also directly purchased $750,000 of QSCBs from the city with a 5.39% yield and 10-year maturity.
Donovan said the issuer purchased the bonds to ensure the transaction would price by June 30, when the Tan payment was due. The bond offering was necessary for the city to receive the reimbursement from the state that it used to help pay off the notes, he said. The corporation had planned to sell bonds on behalf of Central Falls in the spring as part of a pooled issue, but the city was pulled from that deal due to its fiscal woes.
The city went into court appointed receivership in May after it projected a $3 million shortfall in its nearly $18 million fiscal 2010 budget, along with a $5 million budget gap for fiscal 2011. City officials cited revenue shortfalls, cuts to state aid, and unaffordable collective bargaining agreements and pension obligations as reasons for Central Falls’ insolvency.
One revenue problem for the city has been shortfalls from the Donald W. Wyatt Detention Center, which is operated by the quasi-public Central Falls Detention Facility Corp. Last year, the issuer was unable to maintain covenanted debt-coverage ratios on $106 million of bonds issued in 2005 and made an unscheduled draw on its reserves to cover debt service, according to disclosure notices.
The receivership prompted Standard & Poor’s to slash its rating on the city’s $17.1 million of general obligation debt to C from BBB-minus, and Moody’s Investors Service to cut its rating to B3 from Ba1.
Rhode Island last month enacted laws to prevent cities from going into judicial receivership and is now working with the court-appointed receiver to transition Central Falls into state receivership.