Moody's Investors Service said it has upgraded the city of East Providence, R.I.'s general obligation rating to A2 from Baa1, affecting approximately $17 million in outstanding parity debt; the outlook is stable.
Concurrently, Moody's has also upgraded to Aa3 from A2 the rating on the Rhode Island Health and Educational Building Corporation (RIHEBC) bond issue, Series 2007C; the outlook is also stable.
The upgrade of the underlying general obligation rating to A2 reflects the city's continued trend of financial improvement over the last three fiscal years. The city has significantly increased its reserve and liquidity levels through adherence to its formal fiscal policies.
Further, the rating reflects the reduction of the city's unfunded liability in its self-administered pension plan as a result of improved funding practices and the infusion of assets from a legal settlement. In addition, the A2 rating incorporates East Providence's sizeable tax base with average wealth levels and a manageable direct debt burden.
The upgrade to Aa3 from A2 on the underlying rating of the RIHEBC Series 2007C bonds reflects the upgrade of East Providence's underlying GO rating.
RIHEBC's 2007C bond issue is an unenhanced pool and is rated using a "weak link plus" approach, with East Providence being the lowest-rated among the pool's participants.
The Aa3 pooled financing rating incorporates East Providence's A2 GO rating and its relatively low (12% at inception, currently 7.5% due to the repayment structure) portion of the pool as well as the Aa3 rating of the other participant, Foster-Glocester Regional School District.
The significant amount of debt service (51%) directly paid to RIHEBC by the state and the availability of the state of Rhode Island's (Aa2 stable) intercept of state aid for the remainder of the participants' debt service provide strong additional security and lift the pool rating above the weakest link rating of A2.
