Outlook shift to positive affirms Hartford comeback, mayor says
An upward outlook revision of Hartford by S&P Global Ratings represents continued validation of the financial recovery efforts in Connecticut’s capital, Mayor Luke Bronin said.
“For the first time in a long time, we have a serious, transparent financial plan that gives us a foundation to build on,” Bronin said after S&P changed its outlook to positive from stable while affirming its BB-plus long-term issuer credit rating, still junk level. The issuer rating is equivalent to the general obligation unlimited tax rating it would assign to GOULT debt of the issuer, but does not apply to any of the city's outstanding general obligation debt, which carries an A rating because of a state government backstop.
S&P also revised its outlook to positive from stable on the Hartford Stadium Authority's lease revenue bonds, which are financial obligations of the city and which S&P rates BB, one notch below the issuer credit rating.
The bonds backstopped the construction of the downtown Dunkin’ Donuts Park, home to the minor-league baseball Hartford Yard Goats. Last week a state Superior Court jury unanimously ruled in favor of the city in a lawsuit filed by Centerplan Construction Co., which the previous administration selected in 2015 to build the 6,100-seat stadium.
Bronin fired Centerplan in June 2016, five months after taking office, and got the company's insurance carrier, Arch Insurance, to take responsibility for completing the stadium without additional public spending.
The positive outlook, said S&P analyst Victor Medeiros, reflects Hartford's improving management environment and financial controls, which “have yielded balanced operations and greater operating flexibility to address capital and service delivery.”
The new outlook, according to S&P, signifies at least a one-in-three chance of a rating upgrade to investment grade within two years.
S&P cited “significant state oversight” through the state Municipal Accountability Review Board and the city’s contract assistant agreement with the state, which makes $540 million of Hartford debt a general obligation of the state. It also reflects city cost-saving measures through labor contracts and spending controls.
The unusual and controversial debt deal, to which some state legislators and mayors in other cities objected, enabled Hartford, which was on the brink of bankruptcy, to refinance bonds using Connecticut’s full faith and credit backstop.
It also puts the state on the hook for Hartford’s GOs through 2036. Because of that, Hartford's outstanding GO bonds carry S&P's A rating, the same as the state's.
West Haven is also under state oversight.
Hartford's liquidity remains weak, according to S&P, with total government available cash at 13.8% of fund expenditures and 4 times governmental debt service in 2018.
In addition, S&P referenced Hartford’s “very strong” debt and contingent liability profile. Factoring in state contract assistance, S&P calculates the city's projected total governmental fund debt service at less than 1% of total governmental fund expenditures, and the net direct debt 9.3% of fund revenue — “ significantly lower than in the past, and inherently a credit positive.”
Moody’s Investors Service in March upgraded Hartford’s issuer rating to B1 from B2. Because of the state backstop, Moody’s rates the city's GO bonds A2, one notch below Connecticut's rating based on the state backstop.