Hartford received its latest downgrade Tuesday when Moody's Investors Service downgraded Connecticut's capital city two notches further into junk to Caa1 from B2.
The rating is under review for yet another downgrade, Moody's said in a statement. The move affects roughly $550 million in debt.
Moody's cited last week's statements by Mayor Luke Bronin that the 123,000-population city will go bone dry in 60 days in the absence of a state budget providing adequate funding to the city.
"The rating further incorporates the city's commitment to restructuring its debt regardless of the state budget outcome and level of support [if any] from the state," said Moody's.
Hartford has hired Greenberg Traurig LLP to weigh restructuring options, including Chapter 9 bankruptcy. The law firm has scheduled a Sept. 25 conference call with bondholders.
"The rating also reflects the city's precarious liquidity position that could result in insufficient cash flow to meet upcoming debt obligations, which could result in a loss to bondholders," said Moody's.
The city has a $5.9 million debt service payment due Oct. 1 and $21 million in tax anticipation notes due Oct. 31st. "Additionally, the city has debt service payments in every month of the fiscal year, compounding the possibility of default at any time," said Moody's.
Bronin, former chief counsel to Gov. Dannel Malloy, has requested an additional $40 million in aid from the state. Malloy and lawmakers, though, have been gridlocked over a biennial budget and Malloy has run the state by executive order since July 1.
He also called on the state to boost its payments in lieu of taxes and add property to the tax rolls. Roughly half of Hartford's property is tax-free.
“The situation with Hartford is really simple. While approximately half the tax base in Hartford is tax-exempt, thus limiting their revenue, costs have gone way up thanks to two drivers, debt service and pensions," said Hernando Montero, director of credit analysis at Stoever Glass & Co. "It’s simple economics. Costs have gone up and their reliance on state aid has exponentially grown.”
S&P Global Ratings rates the city BB. Neither Fitch Ratings nor Kroll Bond Rating Agency rate Hartford.