Connecticut#s Series 2017A Taxable General Obligation Bonds Rated #A+# With A Negative Other Ratings Affirmed

Stocks and Financial Services Press Releases Thursday December 7, 2017 08:59
NEW YORK--7 Dec--S&P Global Ratings

NEW YORK (S&P Global Ratings) Dec. 6, 2017—S&P Global Ratings has assigned its 'A+' rating and negative outlook to the State of Connecticut's $400 million taxable general obligation (GO) bonds (2017 series A). At the same time, S&P Global Ratings has affirmed its 'A+' rating on the state's approximately $18 billion of GO debt outstanding, its 'A' rating on state appropriation-secured debt, and its 'BBB+' rating on state moral obligation debt. The outlook on all long-term debt is negative.

S&P Global Ratings has also assigned its 'SP-1+' short-term rating to Connecticut's series 2017A $350 million GO bond anticipation notes (BANs), due Sept. 14, 2018. The BANs are also secured by a GO pledge, but are expected to be retired from proceeds of a future long-term GO bond issue.

The GO rating on Connecticut reflects our view of the following factors:
  • The state's high income levels;
  • A diverse economy;
  • Ongoing revenue nearly matching ongoing expenditures, when including the effect of tax increases;
  • Active monitoring of revenues and expenditures to identify and correct midyear budget gaps, as exemplified by midyear budget adjustments made in fiscal years 2015, 2016, and 2017, and expected to be made to address a new small mid-2018 budget gap that has recently been projected; and
  • Adequate operating liquidity, despite negative generally accepted accounting principles (GAAP) fund balances. Offsetting factors, in our opinion, include:
  • Above-average debt, high unfunded pension liabilities, and large unfunded other postemployment benefit (OPEB) liabilities, all of which create what we believe are significant and growing fixed-cost pressures that restrain Connecticut's budgetary flexibility, as evidenced by a four-month delay in enacting the fiscal 2018-2019 biennium budget;
  • Recent population declines and slow economic growth, combined with continued gradual job losses that are forecast for the well-paying financial sector, and which are expected to contribute to weak revenue growth over the next several years and lead to difficult budget-balancing decisions beyond the current biennium; and
  • A history of cyclical budget performance, and currently weak financial reserves available to cushion against the next economic downturn.

The state enacted a bi-partisan 2018-2019 biennium budget four months late into the fiscal year that began July 1, 2017. The delay arose from a need to close large budget gaps resulting from a combination of weak income tax revenue growth; increased pension, OPEB, and Medicaid costs; and a resistance in the legislature to additional tax increases after several rounds of tax hikes in preceding bienniums.

"The negative outlook represents a one-in-three chance we could lower the rating during our two-year outlook horizon," said S&P Global Ratings credit analyst David Hitchcock. "The outlook reflects what we believe to be increasing constraints on achieving long-term structural balance, highlighted by Connecticut's delay in enacting a fiscal 2018-2019 biennium budget," Mr. Hitchcock added.

These budget constraints include revenue weakness because of slow economic growth and recent population decline and reduced revenue-raising flexibility after substantial tax increases were instituted in the past two biennium budgets. We believe several recent high profile relocations of various business headquarters out of state have reduced political willingness for further broad-based tax increases. At the same time, we believe there is less expenditure flexibility following implementation of reductions in state aid to localities; implementation of a recent labor agreement that reduced costs, but also created fixed pay schedules and prohibits layoffs over the next four years; and rising fixed-debt service, pension, and OPEB expenditures. Should economic growth come in below the budget forecast and lead to further significant midbiennium budget gaps that appear politically difficult to close, we could lower the rating. Although Connecticut has been operating with close-to-structural balance, we are concerned that potential future state aid cuts could also diminish the state's long-term economic attractiveness should they materially impact local property tax rates, municipal services, or the quality of local education. However, if economic growth comes in at or above the state's budget forecast, fixed costs could conversely contribute to favorable operating surpluses that improve Connecticut's fiscal posture and allow us to revise the outlook on the state to stable. Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.


Latest Press Release

SET market report for November 2017

The Stock Exchange of Thailand (SET) Index gained 10 percent from the end of last year to 1,697.39 points at the end of November, but dropped 1.4 percent from the end of October. Thailand Futures Exchange (TFEX) average derivatives trading volume was...

PT Indosat Tbk. Upgraded To #BBB-# On Solid Cash Flow And Reducing Outlook Stable

SINGAPORE (S&P Global Ratings) Dec. 8, 2017--S&P Global Ratings today raised its long-term corporate credit rating on Indonesia-based telecommunications operator PT Indosat Tbk. (Indosat) to 'BBB-' from 'BB+'. The outlook is stable. The upgrade...

Elion Resources Group Co. Ltd. Outlook Revised To #B# Rating Affirmed

HONG KONG (S&P Global Ratings) Dec. 8, 2017-- S&P Global Ratings today revised the outlook on Elion Resources Group Co. Ltd. to negative. We affirmed our 'B' long-term corporate credit rating on the company. We revised the rating outlook on Elion...

Yangzhou Urban Construction Assigned #BBB# Rating With Stable Proposed Senior Unsecured Notes Rated #BBB#

HONG KONG (S&P Global Ratings) Dec. 8, 2017--S&P Global Ratings today assigned its 'BBB' long-term corporate credit rating to Yangzhou Urban Construction State-owned Assets Holding (Group) Co. Ltd. (YZUC). The outlook is stable. We also assigned...

Dunedin City Treasury Ltd. #AA/A-1+# Ratings Outlook Remains Stable

MELBOURNE (S&P Global Ratings) Dec. 8, 2017--S&P Global Ratings today affirmed its 'AA' long-term and 'A-1+' short-term issuer credit ratings on Dunedin City Treasury Ltd. (DCTL). The outlook on the long-term ratings remains stable. The ratings...

Related Topics