Moody’s Investors Service last week downgraded Burlington to A2 from Aa3 and placed the credit under review for possible downgrade. The rating change affects approximately $87 million of outstanding parity debt.
Moody’s cited the city’s use of its pooled cash account to help finance the expansion of its telecommunications enterprise, which has been operating with deficits. Such interfund borrowing, which totaled $15.9 million at the end of 2009, has weakened Burlington’s liquidity.
“The deficit cash position is the result of ongoing support from the city’s pooled cash account to fund the citywide build-out of the telecommunications system, which is currently behind schedule,” according to a Moody’s report. “
Despite the city’s efforts, the telecom system has been unsuccessful generating the cash flows necessary to self-fund its capital and debt expenses. It also difficult crafting a realistic refinancing plan to repay the interfund loan due to the pooled cash account, which includes the general fund and the airport enterprise fund, among other smaller accounts.”
Future ratings will depend upon Burlington crafting and implementing strategies to make the telecommunications system sustainable and capable of repaying the interfund loan.
Burlington is Vermont’s largest city, with a 2008 population estimated at 38,897, according to the U.S. Census.