Recovery boosts Rhode Island's Woonsocket to investment grade
Enhanced budget practices have lifted Woonsocket, Rhode Island bonds out of junk territory.
Moody’s Investors Service upgraded Woonsocket’s debt three notches Friday to Baa3 citing the city’s “significantly improved” reserves and liquidity after years of fiscal struggles in the aftermath of the 2008 economic downturn.
The outlook is stable. It's the first time in eight years Moody's has assigned the city an investment grade.
The Moody’s boost follows Fitch Ratings' upgrade of Woonsocket GO bonds two notches to A in June.
“The upgrade to Baa3 from Ba3 reflects Woonsocket's significantly improved reserve and liquidity positions, driven by multiple years of positive operating performance and the city's adherence to multiyear financial planning,” Moody’s analyst Joseph Manoleas wrote. “The rating also incorporates consecutive years of tax base recovery following significant contraction through the recession.”
The new rating applies to roughly $135 million in Moody's-rated debt. Some of the GO bonds were issued through the Rhode Island Health and Educational Building Corporation and secured solely by the loan payments from the City of Woonsocket under its financing agreement with the RIHEBC.
The new Baa3 rating is seven notches higher than five years ago when Moody’s rated the city B3 amid concerns about a deterioration of its school finances and “severely” weakened liquidity levels. Woonsocket helped resolve its fiscal crisis through a state-appointed budget oversight commission that advanced state aid to help the city pay debt service on time.
Manoleas said Woonsocket could be in line for another upgrade with continued growth in the city’s liquidity and fund balance, a significant debt burden reduction or material tax base growth. Woonsocket could get downgraded if the city incurs operating deficits or experiences growth in its debt and pension burdens.
“In 2013 we were mired in junk bond status with these rating agencies and there were those in Woonsocket who believed that our financial problems were so difficult to resolve that we should just give in and go bankrupt,” Mayor Lisa Baldelli-Hunt said in a statement. “Instead of giving in we dug in and tackled our short and long-term fiscal issues with hard-work, disciplined financial management, sound budgetary practices and better, more efficient operations.”
Baldelli-Hunt said there are no immediate borrowing plans for Woonsocket, which has a population of 41,000. The city, which is home to the headquarters of CVS Caremark Corp., is just south of the Rhode Island-Massachusetts border and 15 miles outside of Providence.
“I view our ‘investment-grade’ bond rating as a promotional tool to attract new businesses and residents to our City,” she said.