Central Falls, R.I., received its second general obligation bond upgrade in two months as Moody’s Investors Service elevated the once-bankrupt city to Ba1 from Ba2.
The new rating, which Moody’s assigned Monday, is at the highest rung of speculative grade. S&P Global Ratings on March 8 restored an investment grade rating to the city, upgrading Central Falls three notches to BBB from BB.
Moody’s revised its outlook to positive from stable. It also affirmed its Ba1 rating on the Rhode Island Health and Educational Building Corp. Series 2007B pool bonds.
The upgrade “reflects a multi-year trend of stable operating results and continued positive performance relative to the post-bankruptcy plan since the city's emergence from Chapter 9 bankruptcy in 2012.” Moody’s said in a statement.
Moody’s said it expects the city will enhance its flexibility when its post-bankruptcy plan period ends June 30, 2017, when it implements a policy of requiring maintenance of unassigned general fund reserves of at least 10% of prior year expenditures.
“That reserve fund is very important,” Mayor James Diossa said in a
Central Falls, with a 19,000 population and covering but one square mile, filed for Chapter 9 bankruptcy protection in August 2011. In its filing it reported an unfunded pension liability of $80 million.
The city exited bankruptcy protection 13 months later.
Moody’s said the new rating continues to reflect the city’s high fixed costs – pension, other post-employment benefits and debt service – that total nearly 30% of spending, and a high sensitivity to adverse economic trends compared with other municipalities.
According to Moody’s, a sustained increase in fund balance and maintenance of structural balance could lead to a further upgrade, as could a reduction in long-term liabilities and fixed costs and material tax-base and growth.
A spike in pension and OPEB liabilities, material increases indent and a drift from a new fund balance policy could trigger a downgrade.
