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July 09, 2010

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.

The Mayor will offer that BT is currently ahead of projections of 30 hook ups per month, but continues to evade the question of how many subscribers BT is losing each month.
It may very well be a positive offset, could be a negative offset. Damn it Mayor answer the question with facts and figures, dont dodge the question by offering a churn effect answer. I want to thank the Mayor and CAO personally for causing the BT mess, and will again demand their resignation.
The Moody boys are sitting back their with ropes ready to hang up Burlington taxpayers,Kiss and Leopold must be first on the noose. When their gone we may have a fighting chance.

I'm sure from the mayor's perspective, this is the city council's fault for not going along with the Piper Jaffray financing. If they had, our credit rating would not have taken these hits. The problem is that the payback on that would have been 100 million dollars, and there's absolutely no question it's the city, not just BT that would have been on the hook for that. BT's liabilities are the city's liabilities and always have been. There's just no way to get around the fact that a city owned department is owned by the city.

BT can't compete with the huge cable companies. Even if it were legal, the city with all its might and its entire budget couldn't compete. Comcast literally has 5000 times as many subscribers as BT. 5000 times as many. People don't have a lot of money right now and techology is changing. Nobody needs cable TV or landline phone service any more. The internet does all that. BT is not a big enough ship to ride the waves of change in the telecom ocean. Not only that, this tiny ship is already sinking. It was never seaworthy.

In other news- Standard & Poors may downrade Moody's. HA!

"If they had, our credit rating would not have taken these hits."

That's a popular Prog talking point, but it's pure speculation. PJ still had to do due diligence before committing the $. Do you really think BT would have passed that?

The PJ deal was likely Leopold's exit strategy of choice because while the inevitable default on that loan would have left individual investors holding the bag, it would not have had a direct impact on the City's credit rating. It was a hail mary, though, and one that probably never would have come to fruition even if the CC had foolishly voted to pursue it.

Finally, since Shay refuses to issue a correction to his original story, I'll say it again: the recalibration from A2 to Aa3 was NOT an upgrade, a "raising," or whatever other misleading moniker you want to give it. It did NOT result in lower borrowing costs, as Shay said it did. Moody's was very clear about that. It was a redesignation of the exact same downgraded status that Burlington had. So this makes two consecutive downgrades due to BT, with the threat of more to come.

That's a popular Prog talking point, but it's pure speculation. PJ still had to do due diligence before committing the $. Do you really think BT would have passed that?

No BT would not have. The city would though, and that's all that would have mattered to PJ. No invester would lose. The City would have made good on the debt, I'm sure.

BT is part of the City. The idea of its autonomy was always a hoax. All of this business of the City having to pay more for its service to balance BT's books is funny. Why don't they just raise the City's bill to 17 million next month and call it even?

Nobody can say Leopold didn't warn the council, but now that they've ruled out the long term re-fi- I dunno. How long can we stall Citi? And how do we dump this thing? If we're not all-in then we should get the heck out. We can't just keep BT around the City's neck and let it kill us like this.

Forget recriminations.

One last time for this question.Not really though because I do not expect an answer.
Mr. Mayor. With all do respect I have asked you the question of how many disconnects has BT seen during this same time you tout BT connections are running ahead of projection.
We and I get no answer. Either you are uninformed, ignorant, arrogant, or really do not give a damn about us.
All I ask is what are the disconnect numbers, compared to projections.
I do not know , but these numbers may be a positive for BT, but your failure to respond indicates the following. Ignorance, arrogance, or an attempt to hide the facts.
City Council and Mayor I may be addressing you Monday Night.
Be prepared as this is not going to gfo away.

Oh my, Dale is mad. Does the city provide drool cups or do you bring your own?

"No BT would not have. The city would though, and that's all that would have mattered to PJ."

I don't know if you picked up on this, but there was a court ruling that BT is not allowed to pay its debt from City money any more. This was just a reinforcement of BT's CPG, the City Charter, and Vermont State Law.

Haik, from a guy who voted for Kiss, now you seem to be pretty critical and all-knowing. You're a hypocrite to the max. You voted for that loser. You and he made your bed, now sleep in it.

Jimmy, you make a correct point about the superior court ruling, but there's a couple of issues.

As a taxpayer in Vermont and someone who spends most of his day in Burlington and makes his livelihood there, I'm afraid that regardless of court rulings, Certificates of Public Good, City Charters, and/or Vermont State Law, if BT goes belly up, CitiLease is not going to just walk away from a $50 million debt. Burlingtonians and all Vermonters will pay for that even if it's in some indirect but meaningful way -- like the city never being given a loan again. Can the state actually allow that to happen?

Singlehandedly destroying the credit rating of Vermont's largest city is why Kiss should be out of office and facing indictment -- that, of course, and breaking the law and playing hide-and-seek with the city council about the violation.

PS, you are also of course correct that it is virtually impossible PJ would ever have actually committed to this refinancing after they did their due diligence. They would have seen that the CPG, the City Charter, and state law prevented the taxpayers from guaranteeing the debt. That probably would have ended the investigation right there. They also would have seen that BT is already cash-flow negative with pie-in-the-sky new subscriber projections. And they would have seen that the actual hook-up costs for new subscribers is prohibitive if not impossible because of the need to blast through ledge. Only Kiss would continue the nonsense that PJ would have "saved us," because he is high on marijuana, just plain lying, or a fool. Possibly some combination of the three.

Webber, three things would happen if B'ton defaulted on the loan: Citi would own BT's assets, the City's credit rating would take a drubbing, and the $17+m that Leopold took to pump another year or two into the dying company ("Was that legal, Schatz?" "No comment") will be gone forever. You are correct that the last two of these will hurt Burlington taxpayers, the former in the medium-long term and the latter in the short-medium term.

It would be great if the "productive discussions" with Citi actually amounted to something, but given that BT hasn't made its last two payments, won't make its next, and realistically has no chance of ever doing much more than breaking even on operations, I'm not holding out much hope.

It would also be nice if every paper reporting on this stuff had the balls to push back on Kiss when he makes pointless statements like "we're signing up customers every week" - like, for example, asking how many they're losing every week - but you can't have everything.

Sadly, as far as I can tell, 7D, "Vermont's Independent Voice," hasn't been asking the tough questions in this continuing scandal, at least not lately. Has the media lost interest? Or is 7D sympathetic to Burlington's Prog numbskull-in-chief? Either way, the lack of interest is unfortunate because as you point out it is inevitable that CitiLease will foreclose on BT and then the s___ will hit the fan for Burlington and Vermont.

There's nothing hypocritical about voting for someone, and then continuing to pay attention to their actions after the election. In an ideal democracy, that's kinda what you want people to do.

"Or is 7D sympathetic to Burlington's Prog numbskull-in-chief?"

Gee, ya think?

Briggs does a decent job with BT. He's the only one (as far as I can tell) who picked up on Schatz's non-response to the query about the legality of the $17+m "loan."

No matter how bad things get you can count on Smilin' Bob Kiss to stand there and repeat "We are optimistic that things will work out." Well guess what Bob, the people of Burlington are tired of your baseless optimism and would like a little realism.

@ Jeff: Realism is for people who don't smoke pot. -Bob Kiss.

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