May 15, 2017

S&P lowers Hartford debt rating

Given Connecticut budget uncertainties, S&P Global Ratings has lowered its rating on the city of Hartford's general obligation bonds to 'BBB-' from 'BBB' -- just above "junk-bond" status -- and placed the city on a credit watch, the ratings agency said Monday.

The downgrade includes a lowering of the rating on the Hartford Stadium Authority's lease revenue bonds to 'BB+' from 'BBB-', which is still generally considered investment grade. The credit watch has negative implications, S&P said.

The ratings agency says putting the city on a credit watch reflects its expectation that within the next 90 days, there would be "clarity as to the level of state support the city will receive."

"The downgrade and the CreditWatch placement reflect the heightened uncertainty on whether the state will increase intergovernmental aid or otherwise lend the necessary state support to enable Hartford to achieve structural balance and prevent it from further fiscal deterioration," S&P credit analyst Victor Medeiros said in a statement.

Although it is not uncommon for the state budget to still be in consideration in mid-May, the size of the state and city budget gaps and the lack of consensus around how to close these gaps increases the likelihood of late budget adoption, Medeiros added. The situation is likely what prompted Hartford Mayor Luke Bronin to solicit bankruptcy counsel recently, he said.

"While a bankruptcy filing remains distant, in our opinion, by raising the possibility, we believe that elected officials are seeking to better understand the legal qualifications, process, and consequences associated with this action if there is no budgetary support at the state level," the analyst said.

Currently, there is a likelihood of negative rating action, added Medeiros. Factors that could lead to a downgrade would include whether the state experienced a protracted budget impasse, or if the city were not to receive sufficient support in a timely manner in order to come up with a plan for addressing budget shortfalls, he said.

To return to a stable outlook, the analyst said the city must achieve stronger budgetary flexibility and remain proactive while adjusting spending to lower costs.

Mayor Luke Bronin said via email that the ratings analysis highlights the need for the state to decide "what future we want for our Capital City and region. ... Over the past year, we've shown that we'll do everything we can to get Hartford's house in order, but with half of our property tax-exempt, we need a new partnership with the state of Connecticut."

EDITOR'S NOTE: This story has been updated to include a comment from Hartford's mayor.

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