Moody's downgrades Woonsocket's bond rating

Moody's downgrades Woonsocket's bond rating

WOONSOCKET – Moody's Investors Service on Monday downgraded the city’s general obligation unlimited tax rating to B3 from B2, affecting $214.3 million of outstanding debt. The rating is on review for further downgrade, according to the agency.

“The downgrade reflects the city's imminent liquidity deficiency and upcoming debt service payment dates that will likely require the state to advance aid in order to meet the city's debt obligations,” states an announcement from Moody’s.

"The city's school fund has consistently run operating deficits, draining the city's operating funds of reserves and severely constraining cash flow, despite the issuance
of deficit funding bonds in fiscal 2011 and the appointment by the state of a budget commission last year to provide financial oversight," it continues.

This is second straight year the city will require state aid advances to avoid defaulting on near-term debt service payments, according to Moody’s, “indicating systemic and ongoing challenges to financial balance.” The remittance of those payments depends on the timely passage of the Rhode Island state budget, which had not happened as of Monday.

City officials are also planning a supplemental tax for Fiscal 2013, pending state legislature approval, and hope to pay immediate debt with the help of privately placed tax anticipation notes, as the city's low credit rating makes public market access unlikely. Woonsocket, Moody's points out, has a very high debt burden, at 10.8 percent of full value, including a significant pension obligation bond issue, and large, unfunded pension and other post employment benefit liabilities.

The review for downgrade will consider the city's development and execution of a plan to make its $4.8 million debt service payment due July 15, in light of its severely strained liquidity position. The review will also consider the likelihood of implementation of a balanced budget for 2014 and a five-year deficit reduction plan, which will require successful resolution of ongoing union negotiations to achieve material reductions in active and retiree health and pension benefits. Finally, the review will consider the likelihood of the appointment of a receiver, which could be a precursor to a Chapter 9 bankruptcy filing.