Central Falls, R.I., received its second general obligation bond upgrade in two months as Moody’s Investors Service elevated the once-bankrupt city to Ba1 from Ba2.
The new rating, which Moody’s assigned Monday, is at the highest rung of speculative grade. S&P Global Ratings on March 8 restored an investment grade rating to the city, upgrading Central Falls three notches to BBB from BB.
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Moody’s revised its outlook to positive from stable. It also affirmed its Ba1 rating on the Rhode Island Health and Educational Building Corp. Series 2007B pool bonds.
The upgrade “reflects a multi-year trend of stable operating results and continued positive performance relative to the post-bankruptcy plan since the city's emergence from Chapter 9 bankruptcy in 2012.” Moody’s said in a statement.
Moody’s said it expects the city will enhance its flexibility when its post-bankruptcy plan period ends June 30, 2017, when it implements a policy of requiring maintenance of unassigned general fund reserves of at least 10% of prior year expenditures.
“That reserve fund is very important,” Mayor James Diossa said in a
Central Falls, with a 19,000 population and covering but one square mile, filed for Chapter 9 bankruptcy protection in August 2011. In its filing it reported an unfunded pension liability of $80 million.
The city exited bankruptcy protection 13 months later.
Moody’s said the new rating continues to reflect the city’s high fixed costs – pension, other post-employment benefits and debt service – that total nearly 30% of spending, and a high sensitivity to adverse economic trends compared with other municipalities.
According to Moody’s, a sustained increase in fund balance and maintenance of structural balance could lead to a further upgrade, as could a reduction in long-term liabilities and fixed costs and material tax-base and growth.
A spike in pension and OPEB liabilities, material increases indent and a drift from a new fund balance policy could trigger a downgrade.