HARTFORD, CT — The city of Hartford is likely to default on its debt in a matter of weeks without additional concessions from the state of Connecticut, bondholders, and labor unions, Moody’s Investors Services says in a new report.
“Our analysis projects operating deficits of $60 million to $80 million per year through 2036,” Nicholas Lehman, an analyst at Moody’s said. “Fixed costs — including pension contributions, benefits and insurance, and debt service — are driving large projected operating deficits of approximately 11 percent of revenues.”
Hartford is looking to bondholders to restructure roughly $604 million in general obligation and lease debt. Options for restructuring include refinancing debt by issuing new refunding bonds with a maximum maturity of 30 years, instead of the previous cap of 20 years.
As well, the new bonds would be secured by a statutory lien on property taxes.
In the event of a default, Moody’s said that bondholder recovery is extremely sensitive to the amount of concessions received from stakeholders, and how those concessions are allocated.
Their bondholder recovery analysis, Moody’s said, supports Hartford’s current Caa3 rating based on Moody’s expectation that the state and labor unions will provide significant concessions.
Hartford has lobbied Connecticut for additional short- and long-term aid, which would be an additional revenue source to help resolve the fiscal crisis faced by the capitol city.
State Senate and House leaders said Wednesday they had reached a budget agreement that included measures to make sure Hartford stays solvent, but provided few details on what that agreement entailed.
Hartford Mayor Luke Bronin said Thursday that while he hasn’t seen any details of the bipartisan budget agreement, he believes it will provide a framework to allow the state to partner with the city in a sustained way. One that allows all its stakeholders and bondholders “to achieve the goal of real- and long-term stability,” Bronin added.
In early September, Bronin told legislative leaders that the city would file for Chapter 9 bankruptcy if there was no budget in place by early November.
In a letter sent to lawmakers Sept. 7, Bronin said: “The city of Hartford’s debt is unmanageable. By FY 2021, Hartford debt service payments will be $61 million, or roughly 20 percent of our current non-education expenditures — even if we do not borrow another dollar.”
Hartford has already hired an international law firm, Greenberg Traurig, that specializes in restructuring debt.
In early October, Bronin said there are only two paths to stability for the city of Hartford.
“One of them, which avoids a bankruptcy filing, requires a dramatic and sustained change in the amount of revenue that the city receives from the state,” Bronin said. “If the state of Connecticut is not able or prepared to commit to a partnership that actually makes success possible in the city of Hartford, then it will leave us with no other path to long-term solvency and strength than bankruptcy.”
From Moody’s perspective, Lehman said Hartford’s situation is dire.
“Beyond the short-term funding that may or may not come in fiscal 2018, the city has urged the state to participate in a long-term solution,” Lehman said. “One option is the state fully funding the existing payments in lieu of taxes formula, which has been underfunded for years; fully funded, the payments in lieu of taxes (PILOT) formula would provide the city with $52.3 million of additional revenue each year.”
Moody’s said the additional grant revenue, or an amount equal to the additional PILOT payments, would provide significant improvement to Hartford’s structural imbalance and would cut the city’s projected annual operating deficits by more than half.