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October 21, 2016

S&P Global: MDC ratings downgrade reflects Hartford's distress

S&P Global Ratings has lowered its long-term rating on Metropolitan District general obligation (GO) bonds, to 'AA' from 'AA+'.

The outlook is negative.

S&P also assigned its 'AA' rating and negative outlook to Hartford MDC's series 2016C GO bonds.

The MDC provides water, sewer, and other services to an estimated 366,000 people in the city of Hartford and seven surrounding towns.

"The downgrade reflects the MDC's exposure to the city of Hartford's financial distress," said S&P credit analyst Christina Marin. "In our view, the city's financial imbalance, combined with MDC's elevated debt and a persistently challenging economy, no longer supports the 'AA+' rating.”

S&P and Moody’s Investors’ Service both downgraded Hartford’s debt ratings earlier this month.

Likewise, the negative outlook reflects “the ongoing uncertainty of Hartford's financial condition and the risks it could present to MDC operations," Marin added. “The negative outlook signals that there is a one-in-three chance we could lower our rating over our two-year horizon.”

The city represents 26 percent of eight-member MDC's tax base.

The ‘AA’ rating reflects the ratings agency’s opinion of the MDC’s affluent service area, coupled with strong financial performance and available reserves. Offsetting those strengths are a moderately high debt burden due to a sizable capital improvement plan, “challenged economic conditions,” and the agency’s judgment about member municipalities’ “capacity to pay,” Marin said.

The agency noted it would consider revising its outlook to stable if Hartford “proves” its commitment to the district by making timely quarterly payments.

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