Moody's Investors Service said it has downgraded to A2 from A1 the rating on the town of Winchester, Conn.'s general obligation bonds, affecting $4.6 million outstanding debt.

The rating remains on review for possible downgrade or withdrawal. The bonds are secured by the town's unlimited general obligation tax pledge.

The downgrade reflects the town's weakened financial position following a write down of fiscal 2011 assets as a result of unexplained shortfalls in cash; a forensic audit and legal investigation into this matter has been initiated by the town. Continuing to support the A2 rating is the town's moderately-sized tax base, average wealth and income levels, and a low direct debt burden.

The placement of the A2 rating on review for possible downgrade or withdrawal stems from the lack of sufficient fiscal 2012 financial information and our belief that the town's finances have further deteriorated since the close of fiscal 2011.

Management indicates that additional losses on assets in fiscals 2012 and 2013 can be expected, though the extent of such the losses are not yet known. In completing the review of the town's rating, Moody's will consider the availability of sufficient fiscal 2012 financial information, including the fiscal 2012 audit. If it does not receive sufficient fiscal 2012 financial information over the next 30 days, the rating agency said it will take "appropriate rating action which could include withdrawal or lowering of the rating."

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