Hartford dropped to CC and Caa3; default called `virtual certainty'

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Hartford, Conn.’s debt rating was dropped to CC by S&P Global Ratings and to Caa3 by Moody’s Investors Service Tuesday, with the former calling a default, distressed exchange, or redemption a “virtual certainty.”

S&P took the rating action on both the city’s general obligation and Hartford Stadium Authority’s lease revenue bonds, which were formerly rated B-minus. The agency has the ratings on CreditWatch with negative implications.

Credit analysts Victor Medeiros and Geoffrey Buswick pointed to a “near-term liquidity crisis” and an “ongoing state impasse in adopting a budget” as key problems for the city. The state’s governor has proposed a budget that would cut $49 million in payments in lieu of taxes and municipal revenue sharing grant payments that the city would otherwise get in October.

The current fiscal year’s budget has a gap equal to 8% of expenditures.

While Medeiros and Buswick said they didn’t think a city bankruptcy filing was likely, they said it was possible.

Moody’s action affected only the GO bonds. The bonds had been rated Caa1.

Moody’s cited similar reasons to S&P's for its downgrade.

It said that it expected debt recoveries of between 65% and 80% of par value.

Fitch Ratings doesn’t rate the debt.

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Speculative grade bonds Bankruptcy Bond defaults City of Hartford, CT State of Connecticut Connecticut