On the heels of Hartford’s conference call with bondholders, S&P Global Ratings has downgraded the city of Hartford’s general obligation (GO) bonds again, calling possible “default, a distressed exchange or redemption … a virtual certainty.”
S&P Global Ratings credit analyst Victor Medeiros said the agency has lowered the city’s GO bonds and the Hartford Stadium Authority’s lease revenue bonds four notches, to ‘CC’ from ‘B-’. The city has been on S&P’s CreditWatch status with negative implications since in May.
Just two weeks ago, the ratings agency lowered the city’s junk bond status to ‘B-’ from ‘BB’.
“[Mayor Luke Bronin’s] public statement citing the need to restructure even if the state budget provides necessary short-term funds further supports our view that a restructuring is a virtual certainty,” Medeiros wrote. “In our view, the city is vulnerable to payment interruptions due to its near-term liquidity crisis.”
Although the analyst said he does not see a bankruptcy filing by the city as likely, the risk of a bankruptcy filing remains, “should a debt exchange proceed, given the state budgetary impasse, and the uncertainty surrounding any exchange offer.”
Assured Guaranty, the city’s largest bond insurer, said Monday it would consider refinancing the city’s debt over a 15-year period, in order to keep annual debt payments around $40 million. Bond insurers are open to a traditional bond refinancing but not a bond restructuring or distressed exchange, Medeiros said.
The downgrade also reflects the likelihood that there will not be any agreement on a bipartisan budget before Oct. 1, when planned municipal cuts are scheduled to take effect, the analyst said.
Hartford’s fiscal 2018 budget gap is “sizeable” at $49.6 million, he said, slightly more in fiscal 2019 and increases to more than $69 million by 2021.
In an email, Bronin said the situation is why Hartford leaders “have begun discussions with our large bond insurers, and why we began direct outreach to bondholders on a call this week. Our focus remains on one thing and one thing only: putting the city of Hartford on a sustainable path to long-term fiscal strength.”
