Fitch rates Providence bonds ‘BBB,’ outlook negative

FITCH RATINGS LTD. has rated Providence's $40 million general obligation bonds series 2013A as "BBB," outlook negative.
Posted 2/15/13

NEW YORK – Fitch Ratings has ranked Providence’s general obligation bonds as “BBB,” outlook negative, due to what the global ratings company said was “remaining uncertainly” and the fact that the city still faces “financial pressure and limited flexibility.”

The bonds, $40 million general obligation bonds series 2013A, are scheduled to price via negation during the week of March 4. The city plans to use proceeds for road improvements.

In addition, Fitch affirmed the “BBB,” outlook negative, rating on four other city bonds: $1.9 million GO bonds, series 2000; $11.1 million GO bonds, series 2001B; $19.1 million GO refunding bonds, series 2004; $6.9 million GO taxable refunding bonds, series 2004B.

Fitch’s rating was based on a number of factors, including a financial condition it referred to a “still pressured,” limited liquidity, high future retiree costs and weak demographics.

The ratings company did say that Providence had an “effective management team,” and that the city’s management had made “notable progress” in reducing its structural deficit for the 2012 fiscal year. “The fiscal 2013 budget is balanced and includes an appropriation for partial replenishment of general fund reserves,” said a Fitch release.

The Fitch report also pointed to long-term economic stability from institutions in the city as a positive. Fitch said that long-term economy stability is derived from Providence’s position as the state’s capital, as well as its large educational and health care institution presence.

According to Fitch, formalizing the tentative agreement with Providence retirees could affect the city’s bond rating. An agreement would “ensure immediate and long-term pension and health care cost savings. Inability to obtain formal approval could cause significant budget pressure and a downward change in the ratings.”

Fitch also outlined the city’s credit profile, saying that financial conditions were “still weak.” “Providence has made significant progress in eliminating its structural imbalance, but financial pressure still exists,” said the Fitch release.

Although the city’s fiscal year 2013 budget was balanced, future fiscal year projections show “moderate imbalances” between $30 and $40 million for combined general and school funds. These projects assume no tax base growth, no increase in property taxes and no increase in state school aid.

Also affecting the city’s credit profile were moderate debt levels, high future retire costs and below average socioeconomic indicators, according to Fitch.

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