Central Falls, R.I., which is about to exit bankruptcy protection, received good news from Wall Street on Friday, when Moody’s Investors Service placed the 19,000-population city’s Caa1 general obligation rating on review for upgrade, affecting $14 million in outstanding GOs.

Moody’s also affirmed the Ba1 rating assigned to the Rhode Island Health and Educational Building Corp.’s Series 2007B bonds, affecting $17 million in debt, and assigned a stable outlook.

The rating agency said the review for upgrade, which it expects to complete within 90 days, reflects the increased likelihood of exiting Chapter 9, citing the recent appropriation of transitional payments to retirees and the filing of an updated bankruptcy plan in federal court.

Central Falls still faces challenges, according to Moody’s. They include still-high unfunded pension liabilities that linger despite significant reductions, a small tax base and weak demographic profile, and ongoing bankruptcy proceedings that could affect payment of GO debt.

Judge Frank Bailey in the U.S. Bankruptcy Court in Providence, is expected to clear the city from bankruptcy later this summer. Central Falls filed under Chapter 9 last Aug. 1, citing an $80 million pension benefit shortfall.

While in bankruptcy, receiver Robert Flanders invalidated pension agreements and renegotiated contracts with police and fire officials.

According to its five-year plan, Central Falls projects a $1.2 million operating surplus in fiscal 2012, with gains in the following years to range from $7,400 to $87,800.

Its expected surplus in fiscal 2017 would be $40,000.

Moody’s also said the Ba1 pooled financing rating and stable outlook assigned to RIHEBC’s bonds incorporates Central Falls’ Caa1 rating and the city’s limited — 6.6% — portion of the pooled debt.

Central Falls welcomed Friday’s news.

“It was a combination of hard work and shared sacrifice,” said Gayle Corrigan, the city’s chief of staff and highest-ranking local official, answering to the receiver.

“It really shows that there is life after Chapter 9 bankruptcy and the city is truly back on solid financial footing. It was unfortunate that we were in Chapter 9, but we’re not staying in it for very long.”

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