Connecticut Capital’s Bond Rating Cut to Near-Default Levels
Rating agency Standard and Poor’s (S&P) has cut Hartford, Connecticut’s credit rating to near-default levels, warning of an imminent default. S&P has cut the city’s credit rating from B- to CC. This is the second time in two weeks that S&P has lowered the rating for Connecticut’s capital city.
In a statement regarding the rating cut, S&P said, “The downgrade to ‘CC’ reflects our opinion that a default, a distressed exchange, or redemption appears to be a virtual certainty.”
S&P has warned that an additional cut from CC to D—which signifies default—could come if Hartford’s government doesn’t turn around its financial situation. “S&P Global Ratings could take additional action to lower the rating to ‘D’ if the city executes a bond restructuring or distressed exchange, or files for bankruptcy,” said S&P.
S&P sees a good chance of a bond restructuring or a distressed exchange offering to happen in the coming days. Hartford is teetering on the brink of bankruptcy as it runs out of money to continue its operations. The mayor, Luke Bronin, warned state officials earlier this month that the city has just enough money to keep running for 60 days, after which the city would have no choice but to file for bankruptcy.
Hartford could default on about $30.0 million in debt that is coming due in the coming weeks, if the state does not release funds for the city. Bronin expects the state legislature to approve at least $40.0 million for the city in its upcoming budget.
Hartford’s problems have been exacerbated by the failure of state lawmakers to pass a budget in time. Connecticut is currently funding its own operations through an executive order by Governor Dannel Malloy.
The Democratic governor and the Republican legislature are in a deadlock over the budget. The Republicans are calling for spending cuts while the Democrats are proposing spending increases.
State lawmakers are planning to pass a budget in October. But, if they fail again, Hartford will be forced to file for bankruptcy in November, and ultimately default on its general obligation debt.
“Standard & Poor’s Lowers Hartford’s Bond Rating for Hartford, Says Default on Debt Possible,” Hartford Courant, September 26, 2017.