The latest bond-rating hit to Hartford accurately reflects the dire condition of Connecticut’s wobbly capital city, according to Mayor Luke Bronin.
S&P Global Ratings late Tuesday downgraded the city two notches to junk-level BB from BBB-minus.
“[The] downgrade should send a clear message to our legislature, to labor, and to our bondholders that this is the time to come together to support a true, far-sighted restructuring,” Bronin said in a statement.
Moody's Investors Service already has the city's bonds at speculative-grade Ba2, and has put the city on review for yet another downgrade.
Hartford last week hired Greenberg Traurig LLP as restructuring counsel after Bronin for several months said bankruptcy is an option.
“I have said for months that we cannot and will not take any option off the table, because our goal is to get Hartford on the path to sustainability and strength,” said Bronin, mayor since January 2016 and former chief counsel to Gov. Dannel Malloy.
“We are committed to achieving a comprehensive, long-term solution for the city of Hartford. That will require every stakeholder – from the state of Connecticut to our unions to our bondholders – to play a significant role.”
Bronin’s administration also said the city would start discussions with bondholders about debt-restructuring concessions if Hartford can’t get the additional $40 million it seeks from the state. Bronin is also seeking labor concessions.
The prospect for state help is clouded by Connecticut's own fiscal crisis. Connecticut has received six downgrades over the past year, is late with its fiscal 2018-19 biennial budget and faces a deficit of up to $5 billion over that two-year period. Malloy and lawmakers have yet to agree on a spending plan.
S&P also lowered its rating on the Hartford Stadium Authority's lease revenue bonds to BB-minus from BB-plus. The new ratings remain on credit watch with negative implications, where S&P placed them on May 15.
The watch “reflects our opinion of continued liquidity pressures related to whether the state will provide timely extraordinary aid to the city,” said S&P analyst Victor Medeiros. “Connecticut is facing its own fiscal challenges, and there has been very little indication by the legislature on how it intends to address local government aid and specifically the level of budgetary support it would provide the city of Hartford.”
Hartford increasingly is in the national spotlight as a municipal distress case. Detroit filed an $18 billion bankruptcy in July 2013 and existed about 15 months later. The commonwealth of Puerto Rico filed under a special Title III form of bankruptcy in May, listing $123 billion of debt.
Jefferson County, Ala., and a handful of California cities also filed under Chapter 9. Harrisburg, Pa., also a state capital, filed in October 2011 but a federal judge negated the petition, citing a restrictive Pennsylvania law.
“A filing by Hartford would not be comparable to Detroit’s bankruptcy. That being said, being the state capital Hartford brings a number of intriguing elements to the table,” said Michael Sweet, a bankruptcy attorney with Fox Rothschild LLP.
More than half the property in Hartford -- with merely 17 square miles – is tax-exempt. Hartford’s tax rate of 74.29 mills is the state’s highest, yet the city’s poverty rate of 34.4% is the eighth-highest in the nation among cities with populations above 100,000, according to the Manhattan Institute for Policy Research. The city has about 124,000 residents.
“There are certainly players out there who might be able to help, from the state to the major insurance companies based there -- but they have a long way to go,” said Sweet.
Fortune 500 insurer Aetna Inc. announced two weeks ago that it would move its corporate headquarters from Hartford, where it began in 1853, to New York. In March, Aetna, The Hartford and Travelers Cos. agreed to contribute a combined $50 million to the city over five years.
The gift hinges on “a comprehensive and sustainable solution for Hartford,” the companies' chief executives said in a joint commentary.