Kroll Bond Rating Agency Inc., which two months ago issued its first state rating when it ranked Connecticut, went back to that state Monday to continue its municipal finance buildout.
In its first rating of a city, Kroll rated Waterbury’s general obligation bonds A-plus, with a stable outlook. Its scale mirrors those of Fitch Ratings and Standard & Poor’s.
The western Connecticut city, with a population of 110,000, has scheduled a bond issue for next week.
The sale will involve $21.5 million of Series 2012A new-money bonds, and $20.5 million of taxable Series 2012B refunding bonds. The new-money proceeds will fund a variety of capital projects, including school improvements and roads. Refunding proceeds will cover the city’s outstanding GO tax revenue-intercept refunding bonds, Series 2004B, secured by the state’s special capital reserve fund.
On Tuesday, Standard & Poor's raised Waterbury GO to an A from an A-minus, citing "consistent financial operations and strong financial management policies."
Fitch also assigned A-plus to the bonds, while Moody’s Investors Service assigned.
“It’s a major city. They have a very interesting story to tell, and it’s a pretty good story. They have been managing their finances well,” said Kate Hackett, a Kroll managing director. Managing director Thomas Randazzo and analyst Brittni Smith also worked on the report.
The city operated under a state fiscal oversight agency, the Waterbury Financial Planning and Assistance Board, from 2001 through 2006. In 2002, the city issued deficit bonds. Active monitoring by the board ended in 2006. With the refunding of the remaining special capital reserve fund bonds, the board’s statutory ability to oversee will expire.
“They were under a fiscal control board and have institutionalized the fiscal controls from that period, and have done so very successfully. It’s been a pretty consistent road since they made that shift,” Hackett said.
Waterbury’s direct debt as of June 26, according to the report, is $476.4 million on a pro-forma basis. Kroll views the city’s debt as moderate, both on a per-capita basis at $4,317 and as a percentage of full-market property valuation at 6.3%.
Kroll representatives visited Waterbury, about 30 miles southwest of the capital, Hartford, and met with Mayor Neil O’Leary, chief of staff Joseph Geary, and finance director Michael LeBlanc. Messages seeking comment were left with O’Leary and LeBlanc.
In last week’s release of its GO rating methods, Kroll said it reviews municipalities’ governance, resource or economic base, debt and additional continuing obligations, and financial performance and liquidity.
“We also put a focus on management, both from a financial policies framework and what we see as a management culture,” Hackett added.
For instance, the report cited the move by O’Leary, the former police chief, to make the economic development director’s position full-time and within the mayor’s office after he took over last December. Ronald Pugliese now holds that position.
O’Leary the previous month defeated five-term incumbent Michael Jarjura after campaigning on a theme of aggressively marketing the city.
Kroll considers Waterbury’s municipal resource, or economic base, fairly weak, based on low income levels, a high poverty rate, high unemployment and a stagnant property tax base.
Income per capita is viewed as low at 58.1% of the Connecticut average and 78.5% of the national average. The percentage of city residents below the poverty level is 21.8%, over twice the state average and higher than the U.S. average.
The new rating agency, founded by corporate investigations pioneer Jules Kroll, rated Connecticut’s general obligation bonds AA — its third-highest ranking — with a stable outlook, matching the ratings of S&P and Fitch. Moody’s rates the GO debt Aa3.