Fitch Ratings has changed New Britain’s ratings outlook from “stable” to “negative,” citing the city’s reliance on one-time budget measures and expected future budget pressures driven by rising fixed costs for debt and retiree benefits.
Fitch’s revised outlook, announced Monday, comes as New Britain prepares to issue more than $65 million worth of bonds in order to refinance a portion of its current debt, producing near-term budget savings.
Fitch assigned an “A-” rating to those pending refunding bonds, which falls squarely in the middle of what is considered investment grade. It’s also the same score Fitch has assigned to the city’s existing debt.
The negative outlook indicates the direction in which New Britain’s bond rating is likely to move over the next one to two years, should current trends persist.
Fitch said it expects New Britain’s spending pace to be above its revenue growth over time.
“The proposed debt restructuring provides near-term budget relief but does not eliminate an ascending debt service schedule that spikes in fiscal 2025 and remains above current levels for several years thereafter,” its report said.
Working in New Britain’s favor is the fact that it has built up reserves in recent years.
However, Fitch said, some of that reserve building has been accomplished through restructurings like the one the city is now pursuing.
“A build-up of reserves from one-time savings generated from bond premiums and refundings has supported the improved near term liquidity; however, Fitch does not believe this practice to be sustainable,” it said.
“The negative outlook reflects Fitch’s concern regarding the town’s dependence on various one-time measures and budget deferrals that could create large future budget imbalances in a time of uncertainty and economic contraction.”
