Moody's Downgrades Burlington Credit Rating (Again)
In keeping with the practice of releasing bad information late on a Friday, Burlington officials late today announced that Moody's downgraded the city's general obligation credit rating two notches and moved the city's status from a “negative watch” to “negative outlook."
This means the credit rating company will not review Burlington’s status until the city next pursues a bond sale.
The Moody’s action follows its decision in March of this year to downgrade the city’s credit rating and place Burlington on a 90-day negative watch period. That action resulted in an A2 rating, which was subsequently raised back to Aa3 when Moody’s recalibrated all municipal credit ratings to reflect general improvements in the municipal bond arena, city officials said in a statement.
"The negative outlook reflects the possibility of further downward rating movement over the near term. While the city is actively pursuing a viable solution for the telecommunications system there remains a high degree of uncertainty regarding the city's ability to place the enterprise on a more sustainable path and ultimately repay the funds owed to the city's pooled cash account," Moody's said in a release explaining the downgrade.
The rating affects about $75 million in outstanding debt, Moody's noted.
The Moody’s analysis leading to today’s action reflects concerns that are similar to those from the March analysis — primarily, the uncertainty regarding Burlington Telecom's $16.9 million debt to the city’s pooled cash account.
Moody's has also downgraded the city's airport bond rating in May.
"Future rating action will continue to depend on the city's ability to produce a viable plan to place the telecommunications system on a more sustainable path and provide additional detail on the prospects for the system to meet its obligations, including repayment of the interfund loan," Moody's noted. "Additionally, given the city's reliance on cash flow borrowing Moody's will continue to monitor the city's cash position, its ability to meet day-to-day operating requirements and general fund debt service payments, and how a potential default of their outstanding telecom lease obligation would impact operations of the enterprise."
The Moody's report notes the city’s credit rating could go back up based on the reduction or elimination of the amount due from BT to the pooled cash account. Without progress on repayment to pooled cash, and in the absence of a viable plan to make Burlington Telecom more financially sustainable, the credit rating could sink further.
“While the Moody’s decision today is disappointing, we are optimistic that ultimately the city will be able to address their concerns. o that end we are working to resolve BT’s challenging financial circumstances,” said Burlington Mayor Bob Kiss. “We continue to be involved in productive negotiations with CitiCapital regarding our lease purchase agreement. With more time, we remain optimistic that we’ll be able to address BT’s financial issues and keep moving forward.”
Burlington Telecom, with 4800 customers, is signing up new customers every week, Kiss added.
In its rating report, Moody's offered the following examples of how the city's credit rating could improve or worsen:
What could move the rating up (remove the negative outlook):
• Reduction or elimination of the amount due from BT to the pooled cash account
What could move the rating down:
• Inability to make meaningful progress towards repayment of the interfund loan
• Lack of a viable plan to place BT on a more sustainable path, or growth on the negative net asset position of the Telecom Fund.
• Structurally imbalanced General or School Fund operations, reducing the city's financial flexibility.