Central Falls, R.I., nearly five years after filing for bankruptcy, has an investment-grade bond rating again.

S&P Global Ratings on Wednesday night raised the long-term general obligation rating of the 19,000-population, one-square-mile city three notches to BBB from BB.

"Central Falls is operating under a much stronger economic and management environment since emerging from bankruptcy in 2012," S&P credit analyst Victor Medeiros said in a commentary. "The city has had several years of strong budgetary performance, and has fully adhered to the established post-bankruptcy plan."

S&P also assigned a positive outlook.

"The positive outlook reflects the possibility that strong budgetary performance could lead to improved reserves in line with the city's new formal reserve policy," Medeiros said.

Central Falls' $18 million fiscal 2018 budget included a rainy-day fund equal to 1% of the new plan. The city had an operating surplus in the general fund and break-even operating results at the total governmental fund level in fiscal 2016.

S&P referenced the city's strong liquidity, with total available cash at 28.7% of total governmental fund expenditures and 1.9 times governmental debt service, along with a "strong institutional framework score."

The city, which sits 10 miles north of state capital Providence, filed for Chapter 9 protection on Aug. 1, 2012, citing an $80 million unfunded pension liability. It exited 13 months later, after state-appointed receiver Robert Flanders, a retired Rhode Island Supreme Court justice, crafted a six-year recovery plan.

Pensioners received benefit cuts of up to 55% while the city was in bankruptcy, although Rhode Island's General Assembly approved legislation to restore some of the payments.

After the city's bankruptcy generated national headlines, Alec Baldwin came to town to raise money for Adams Memorial Library, whose closing caught the actor's attention. Baldwin donated $15,000 to the library in 2011 and 2012 and offered matching grants to complement city fundraising.

Wednesday's S&P announcement marked the latest in a series of post-bankruptcy upgrades for Central Falls. Moody's Investors Service upgraded the city six times since 2012, from Caa1 to still-junk Ba2. Moody's assigns a stable outlook.

"Our efforts and dedication to following fiscally sound budgeting practices are clearly paying off, leaving the city in a strong position," said Mayor James Diossa.

Diossa, 31, a former councilman and the son of Colombian immigrants, won a special election in December 2012 to fill out the mayoral term of Charles Moreau, who resigned under scandal that May and served one year in a federal prison on federal corruption charges.

He won a four-year term in November 2013.

"The city of Central Falls now has an investment grade credit rating from S&P due to diligently following the post-bankruptcy plan in conjunction with surpassing budgetary projections," said the city's administrative financial officer, Leonard Morganis.

State oversight is scheduled to end in April 2018.

"A multi-step upgrade of this magnitude is uncommon," said the city's financial advisor, Hilltop Securities Managing Director Maureen Gurghigian, a Rhode Island public finance veteran.

According to Medeiros, the city's credit quality could continue to improve if it can build and sustain its gains in reserves and adhere to its successful financial practices, particularly once the bankruptcy plan and state oversight conclude.

"Improving reserves over time would suggest that the city can position itself to better respond to the revenue effects of the next recession," said Medeiros.

He said increasing costs and revenue limitations would continue to challenge the city, Rhode Island's poorest.

In November, Providence received a three-notch upgrade from Fitch Ratings, to A-minus from BBB-minus. Fitch cited revenue growth and spending controls, and its revised criteria for rating state and local government debt.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.