Moody’s Investors Service late Monday downgraded the general obligation bond rating of East Providence, R.I., three notches to Ba1 from Baa1, affecting about $22.4 million of outstanding debt.
The bonds are secured by a general obligation tax pledge.
East Providence’s rating has dropped six notches overall this year. On Aug. 11, Moody’s lowered its rating to Baa1 from A1.
Also Monday, Moody’s downgraded the Rhode Island Health and Education Building Corp.’s Series 2007C bond issue to Baa2 from A2, of which the city’s portion represents 8.4%.
Both ratings remain under review for possible further downgrade, Moody’s said.
“The downgrade reflects the city’s ongoing financial strain, compounded by the growing accumulated deficit in the school unrestricted fund; a heavy reliance on cash-flow borrowing; and increasing fixed costs related to pension and OPEB (other post-employment benefit) liabilities,” Moody’s said in a statement. “The downgrade also incorporates the recent appointment of a fiscal overseer by the state, which signals the severity of the city’s fiscal challenges.”
Last month, Gov. Lincoln Chafee named Stephen Bannon from the Rhode Island state police to oversee the finances of the 47,000-population city. Appointing an overseer is the first of three state interventions for troubled cities under the Fiscal Stability Act of 2010.
Moody’s earlier downgrade against East Providence came 10 days after Central Falls, R.I., filed for Chapter 9 bankruptcy protection, a move that has prompted ratings actions against many Rhode Island municipalities.