A federal investigation into loan guarantees made by the Town of Oyster Bay, N.Y. following the arrest of a restaurateur could impact the credit rating of New York's fourth largest township, according to Moody's Investors Service.
Harendra Singh, who owns several Long Island restaurants, was arrested on Sept. 9 and charged by the FBI with a 13-count federal indictment that included allegations he bribed Oyster Bay officials to receive $20 million in loan guarantees for some of his establishments. A former town official was named as a co-conspirator by the FBI.
Moody's downgraded Oyster Bay's general obligation bond rating to A3 from A2 in August 2014 citing a negative reserve position from years of imbalanced budgets. The Long Island town had a population of 293,214 in the 2010 Census.
"The credit impact to the town of the arrest is not clear at this time, and Moody's will continue to monitor the situation," said Moody's analyst Robert Weber in a Sept. 14 report. "It is not clear whether the loan guarantees are binding contracts given that they potentially violate New York State law, which prohibits local governments from guaranteeing debt of private developers."
Weber noted that various reports suggest the amount of loans Oyster Bay guaranteed could be as much as $14.3 million. Oyster Bay officials did not confirm the actual amount with Moody's, but Weber said if the town is required to cover all the obligations it would increase its debt burden "only slightly" since there is over $800 million in debt outstanding as of June. Failure to disclose the loan total, however, does "call into question management's oversight of operations and debt management," said Weber.
"It is unclear at this time if the town entered into agreements that violated the state constitution," said Weber. "Additionally, the town could face federal penalties by the Securities Exchange Commission for failing to disclose the debt guarantee. We expect any investigation into the town's culpability to take considerable time."
"Moody's statement was intended to identify a range of hypothetical outcomes, not the most likely one," the town's outside counsel, Jonathan Pickhardt, said in a statement.
" The Town is confident it will owe nothing on account of unauthorized and unconstitutional agreements created by a rogue Town employee," he said.
