Moody’s Investors Service dropped Burlington, Vt.’s general obligation rating three notches Wednesday, citing the city’s strained finances caused by its support to Burlington Telecom, the city-owned cable, Internet and phone service provider. Analysts also dropped Burlington certificates of participation to junk-bond status.
The downgrade to Baa3 from A3 affects $73 million of long-term debt.
Moody’s also downgraded $12.1 million of the city’s certificates of participation. Series 2000 and 2002 COPs for a police facility dropped to Ba1 from Baa1 and Series 1999A, 1999B and 2007 COPs slipped to Ba2 from Baa2.
The outlook on the GO debt and certificates is negative but the credit has been removed from review.
Previous draws from the city’s pooled cash for the expansion of Burlington Telecom have greatly reduced the city’s liquidity to narrow levels, Moody’s said, resulting in a high reliance on cash-flow borrowing to maintain financial operations and continue to meet debt service obligations.
The rating also factors in the city’s strength as the economic center of Vermont, rated Aaa, as well as its manageable debt profile.
The negative outlook reflects Burlington’s ongoing strains related to its various enterprise funds and the potential negative effect on the city’s financial position from a Citibank lawsuit, analysts said.
Citibank sued Burlington in September after the city failed to make payments on a $33.5 million lease-financing agreement. Talks between the city and Citibank broke down in late 2010 and the last payments were made in May 2010.
Moody’s said the potential exposure of the city’s general fund to any judgment or settlement resulting from the lawsuit is considered a challenge.