The City Once Dubbed “New England's Rising Star” Has Fallen on Hard Times
On Tuesday, two leading credit-rating agencies again downgraded the city of Hartford: Moody’s Investors Service now rates the struggling city at Caa3, while S&P Global Ratings has lowered its rating to CC. They attribute the junk classification to the increasing likelihood of a default by Hartford on its debt service obligations to bondholders.
The downgrade comes on the heels of a public statement by Assured Guaranty, Hartford’s largest bond insurer, that it is willing to work with the city on a plan “that would provide debt service relief . . . a general obligation bond refinancing solution, and that . . . would not require a chapter 9 bankruptcy filing.” Assured further cautioned that a bankruptcy could have significant and long-term negative consequences, not only for the city itself but for the entire State of Connecticut. “These potentially include years of expensive and time-consuming litigation, loss of investor and business community confidence, diminished or no access to capital markets and an increased cost of borrowing for essential infrastructure and development.”
This proposal received a cool reception from Mayor Luke Bronin, who pledged to oppose any restructuring that saddles the city with a heavy, long-term debt load. “I appreciate Assured’s willingness to have constructive discussions, and our team is prepared to engage with all stakeholders who are interested in constructive discussions. That said, as I have said many times before . . . we are interested in long-term solutions that leave the City with a path to sustained solvency and strength, without leaving future administrations to deal with the same kind of challenges.”
The city has hired Greenberg Traurig and Rothschild & Co. to explore all options for addressing the debt crisis, including a Chapter 9 bankruptcy filing. Earlier this month, city officials sent a letter to the State’s governor, Daniel Malloy, pleading for financial assistance and warning that a current deficit of almost $50 million could force a bankruptcy filing in as little as 60 days. Given Connecticut’s own budget deficit of about $3.5 billion, however, assistance from the State is hardly assured.
The financial challenges that Hartford faces are not unique; they are comparable to those of other U.S. cities that have sought bankruptcy protection. The tax base has withered as the population has dwindled and pension obligations have grown more burdensome. So, despite cuts in services and efforts to extract concessions from labor unions, the city still faces a significant budget shortfall. And, with roughly half the real estate in the city owned by the government or otherwise immune from property tax, the city has struggled to generate the revenues needed to close the budget deficit and fund municipal services.
A Hartford bankruptcy is not inevitable: assistance from the State, a negotiated resolution with creditors, or a debt refinancing could help avoid or at least delay a reckoning in Court. But, unless and until one of these solutions presents itself, bankruptcy will remain a possibility.
We will continue to monitor all developments related to the Hartford debt crisis and provide periodic updates here.