Moody's Investors Service Tuesday upgraded the general obligation rating of once-bankrupt Central Falls, R.I., to Ba2 from Ba3 while maintaining a stable outlook.
The move — which still leaves the bonds at speculative grade — affects $7 million in debt.
"This is exciting news for the city and its residents who have worked hard to help the city recover from the corruption and mismanagement of the past," said Mayor James Diossa. "During my administration, Central Falls has seen several positive ratings and outlook upgrades that reflect the forward direction the city has taken. Gradually, we have achieved milestones like this ratings bump that will have longstanding effects on the future of the city."
Central Falls, a 19,000-population city 10 miles north of state capital Providence, filed for Chapter 9 bankruptcy in August 2011, reporting an $80 million unfunded pension liability. It exited 13 months later after realizing benefit cuts of up to 55% for retirees. Some cuts were restored.
Tuesday's upgrade "reflects a multi-year trend of favorable operating results [before capital transfers] since its emergence from Chapter 9," Moody's said in a statement. "The bankruptcy process resulted in material financial relief to the city through a reduced labor force and restructured pension and [other post-employment benefits]."
Central Falls' recent city's operating results have generally exceeded the projections of the bankruptcy financial turnaround plan, said Moody's. "The city continues to face significant challenges, however, including high fixed costs [comprising pension, OPEB and debt service expenses], weak projected revenue growth, significant capital needs, and weak socioeconomic indicators," the rating agency added.
The rating, said Moody's, also factors in the city's "very narrow" unrestricted operating reserve position at 2.9% of general fund revenues, driven largely by a requirement in the bankruptcy recovery plan that most of the operating surpluses be transferred to a restricted capital fund through fiscal 2017.
According to Moody's, the rating also incorporates additional credit strength from the 2011 state law creating a priority lien for GO bondholders that essentially set up Central Falls for a clean bankruptcy filing.
Standard & Poor's on March 3 revised its long-term outlook on Central Falls to positive from stable while also affirming its junk-level BB long-term rating.