Moody's Investors Service said it has upgraded the rating to Ba2 from Ba3 on the city of Central Falls, R.I.'s general obligation bonds, Series 2007.
The outlook remains stable.
The upgrade to Ba2 from Ba3 reflects a multi-year trend of favorable operating results (before capital transfers) since its emergence from Chapter 9 bankruptcy in 2012.
The bankruptcy process resulted in material financial relief to the city through a reduced labor force and restructured pension and OPEB benefits.
The recent city's operating results have generally been better than the projections in the bankruptcy financial turnaround plan. The city continues to face significant challenges, however, including high fixed costs (comprising pension, OPEB and debt service expenses), weak projected revenue growth, significant capital needs, and weak socioeconomic indicators.
The rating also factors in the city's very narrow unrestricted operating reserve position at 2.9% of general fund revenues, driven largely by a requirement in the bankruptcy recovery plan that most of the operating surpluses be transferred to a restricted capital fund through fiscal 2017.
The stable outlook reflects the expectation the city will continue to adhere to the six-year financial plan adopted in June of 2012 as part of the bankruptcy settlement. The city will continue to address its long-term pension liabilities by fully funding its annual required contribution (ARC), resulting in a reduced unfunded pension liability, the rating agency said.
The requirement of the financial plan to allocate most of its operating surpluses to a capital fund will prevent a material increase in operating reserves until after the plan ends in fiscal 2017. The continued presence of a state-appointed Administration and Finance Officer (AFO) will also help to ensure that the city's financial position remains stable over the next few years.
The rating also incorporates additional credit strength from the state law creating a priority lien for GO bondholders.
