NEW: Providence Slammed Again on Bond Rating
Monday, March 21, 2011
Adding insult to injury, but not surprisingly, Fitch Ratings has followed suit with Moody’s Investors Service and downgraded Providence’s general obligation bonds two notches from “A’ to “AA-.” Fitch also echoed Moody’s by saying that its official outlook is now “Negative,” down from “Stable.”
By the Numbers
The drop in evaluation cuts across the fiscal board:
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST- $2.980 million GO bonds, series 2000, downgraded to 'A' from 'AA-';
- $1.340 million GO bonds, series 2001A, downgraded to 'A' from 'AA-';
- $11.090 million GO bonds, series 2001B, downgraded to 'A' from 'AA-';
- $3.770 million GO refunding bonds, series 2001C, downgraded to 'A' from 'AA-';
- $23.510 million GO refunding bonds, series 2004A, downgraded to 'A' from 'AA-';
- $8.475 million GO taxable refunding bonds, series 2004B, downgraded to 'A' from 'AA-'.
Familiar Story
Fitch’s stated rationale for the descent of the bond rating was led by a familiar story by now: “(T)he precipitous decline in financial flexibility over the last year compounded by significant structural deficits forecasted for fiscals 2011 and 2012.”
The investment firm also expressed concerns about the city’s ability to generate cash flow in the short term, and the medium-term problem of closing significant budget gaps given revenue limitations.
In summarizing its bond problems, Fitch identified issues that are becoming well known locally: “Providence has experienced significant financial pressure as a result of imprudent budgeting decisions and failure to implement recurring budget solutions in the wake of the state's cut in education and municipal aid and a significant rise in employee pension, health and salary expenses.” In a nutshell.
Initial Bond Rating Drop
Responding to Moody’s dropping down of the Capital City’s rating last week, David Ortiz, spokesman for Mayor Angel Taveras, said “Moody’s downgrade of the City’s General Obligation rating from A1 to A3 is not totally unexpected, given Providence’s current financial condition and a projected $110 million structural budget deficit for FY12.”
"Despite the downgrade, Providence still has an investment-grade rating," Ortiz continued, saying the firm "acknowledged the initial actions Mayor Angel Taveras has taken in his first 60 days in office to address the City’s financial condition. Mayor Taveras will continue to make the tough decisions needed to stabilize the City’s finances.”
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