Hartford Could Default On Its Debt As Soon As Next Month, Moody's Says

Tyler Durden's picture

Moody’s latest warning about Hartford Connecticut is its most dire yet.

In a report issued Thursday, the ratings agency’s analysts said Hartford, Connecticut’s once-proud capital city, could default on its debt as soon as next month, forcing the capital of the country’s wealthiest state (on a per capita basis) into bankruptcy.

If the city doesn’t change course (and given its shrinking tax base and the departure last year of Aetna, a major insurance company that was founded in Hartford and had located its headquarters in the city for more than 150 years, reforms appear unlikely), receive a state bailout or strike some kind of deal with its creditors, Moody’s says lenders can expect it to run up annual deficits in excess of $60 million through the next 20 years.

Moody’s (along with its rivals Fitch and Standard & Poor’s) downgraded Hartford’s credit rating on Sept. 26 to Caa3 from Caa1, reflecting a view that creditors would only manage to recoup between 60% and 80% of their principal should Hartford default.

Of course, there’s no guarantee that the state government will be there to support troubled Hartford. Four months into the fiscal year, Connecticut is the only state in the country that hasn’t passed a budget as lawmakers the state’s lame-duck Democratic Gov. Dannel Malloy joust over how to close a $3.5 billion two-year budget deficit. In a reflection of the state’s broader fiscal crisis (as is the case in many US states), Moody’s says Hartford’s public employee unions represent a “significant constraint” to cutting the city’s deficit, as the Hartford Courant points out.

Moody’s called Hartford’s unions “a constraint” to trimming the city’s deficit. “Contractual salary increases and employee benefits are significant contributors to the city's long term structural imbalance,” the report read. Unions would have to make “significant concessions” for Hartford to narrow those deficits, it said.

 

High labor costs stem from “decades of contractual salary increases and employee benefits,” Moody’s wrote, and those benefits — which include health insurance, pensions payments and workers compensation, among others — are expected to increase by $21 million in 2018. Moody’s found that benefits and insurance costs have increased 6 percent each year for the last 10 years, compared to an annual increase of just 2 percent in the urban consumer price index during the same period.

 

Moody’s called Hartford’s unions “a constraint” to trimming the city’s deficit. “Contractual salary increases and employee benefits are significant contributors to the city's long term structural imbalance,” the report read. Unions would have to make “significant concessions” for Hartford to narrow those deficits, it said. 

To circumvent this, Moody’s suggests the state craft legislation that would open up the arbitration process and allow municipalities to renegotiate contracts - a process that, given the immense political power wielded by public employee unions in the state, appears unlikely to succeed, even as state and local finances rapidly deteriorate.

Unfortunately for the city, Moody’s says debt restructuring wouldn’t be as effective a concession as the other strategies being pursued by the city’s Democratic Gov. Luke Bronin. This is largely because the city would be forced to pay more in interest further down the road. Bronin his hoping to convince creditors to restructure some $600 million in debt.

Of the three avenues being pursued by Mayor Luke Bronin — debt restructuring, increasing state aid and renegotiating labor contracts — debt service would be “a smaller source for potential concessions” than escalating state aid or negotiating with unions, Moody’s said.

 

Moody’s said bondholders and city leaders discussed issuing new refunding bonds with a maturity of 30 years, rather than the previous cap of 20 years, which “would provide principal repayment in full but over a longer period."

 

While that maneuver would reduce Hartford’s immediate deficits, the city would be forced to pay more interest, increasing the cost of its debt, Moody’s wrote.

 

Bronin has said he is not interested in saddling Hartford with mounting interest for decades to come, and Moody’s said it does not expect him to take this route.

Bond yields on Hartford's muni debt have shot higher since the first spate of downgrades earlier this year...

...as for the state government, WSJ reported Wednesday that lawmakers have reached a preliminary deal, a sign that the budget impasse may soon be coming to an end.

Unfortunately, this wouldn’t be the first “preliminary deal” to fall apart at the last minute.

* * *

Read the Moody’s press release in full below:

New York, October 19, 2017 -- The City of Hartford (Caa3 negative) is likely to default on its debt as early as November without additional concessions from the State of Connecticut (A1 stable), bondholders and labor unions, Moody's Investors Service says in a new report. How and when the concessions are realized will factor into bondholder recovery as well as the city's financial recovery.

"Our analysis projects operating deficits of $60 million to $80 million per year through 2036, the final maturity of its general obligation debt," says Nicholas Lehman, a Moody's AVP. "Fixed costs — including pension contributions, benefits and insurance, and debt service — are driving large projected operating deficits of approximately 11% of revenues. "

Hartford will look to bondholders to restructure roughly $604 million in general obligation and lease debt. Options for restructuring include refinancing debt by issuing new refunding bonds with a maximum maturity of 30 years, instead of the previous cap of 20 years. As well, the new bonds would be secured by a statutory lien on property taxes.

In the event of a default, bondholder recovery is extremely sensitive to the amount of concessions received from stakeholders, and how those concessions are allocated. Bondholder recovery analysis supports the Caa3 rating based on Moody's expectation the state and labor unions will provide significant concessions.

Hartford has lobbied Connecticut for additional short- and long-term aid, which would be an additional revenue source to help resolve the fiscal imbalance. However, the availability of this support is highly unknown in the midst of a state budget impasse, as one of the key contentious elements within the budget is additional aid for Hartford.

"Beyond the short-term funding that may or may not come in fiscal 2018, the city has urged the state to participate in a long-term solution," Lehman says. "One option is the state fully funding the existing payments in lieu of taxes formula, which has been underfunded for years; fully funding the payments in lieu of taxes (PILOT) formula would provide the city with $52.3 million of additional revenue each year."

Moody's says the additional grant revenue, or an amount equal to the additional PILOT payments, would provide significant improvement to the city's structural imbalance and would cut our projected annual operating deficits by more than half.

Hartford unions are a constraint to significant labor spending cuts. Though the city has reduced its labor force, contractual salary increases and employee benefits are significant contributors to its long-term structural imbalance.
 

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Creepy_Azz_Crackaah's picture

Good. Let the games begin.

YUNOSELL's picture

The London Whale will be nothing compared to the Hartford Whalers

Escrava Isaura's picture

“Reagan proved that deficits don't matter.” – President Dick Cheney

 

Never One Roach's picture

"The Democrats fundamentally changed America!"

 

~ Soweeto bin Bama

rcintc's picture

This totally sucks....I live in CT

Bigly's picture

I used to work in one of those buildings in the picture. 

Hartford needs to declare bankruptcy and ditch the pension obligations. They cannot maneuver in a positive direction without this.

Also, 50% of the properties in Hartford do not pay property tax.

CHURCHES SHOULD PAY PROPERTY TAX JUST LIKE ALL OTHERS DO. STOP THIS STUPID EXEMPTION IMMEDIATELY 

claytonmoore50's picture

It seems there is a common thread is all local, city and state finacial woes; Unions and overly generous pay and retirement benifits.

It seems they all just squeezed the taxpayers a bit too much and they are killing that golden goose...

dirtyfiles's picture

I went to local DMV yesterday to register a car and had to pay $200 fine for keeping uninsured car at my property that I no longer use and $ 150 fee for using lien to finance my new car and paying sale tax out of state NH where there is no sale tax using bill of sale where DMVs book value was much less...at the same time I pulled registration for my sons car which was unpaid on time and this was $80+10 late fee+$10 clean air act...this state is going down for sure

Bigly's picture

Why did you have a fine...i.e., did you self report this?  No way I would volunteer any of this. Slap a car cover over it and keep your mouth shut!

kermudgen's picture

The second best hockey team in New England.

Give Me Some Truth's picture

Get used to this story. But if the potential crisis is deemed to be serious and a threat to the Establishment some remedy will be found. These cities will be bailed out by states, which will in turn be bailed out by ever bigger and more frequent bond issues.

"Someone" will always buy the bonds.

Somewhere along the chain printing press money will be employed and disseminated where needed.

Rex Andrus's picture

Hartford Hey Jackass, with less than 5% conviction rate.

SilverRoofer's picture

Another liberal shithole

 

onewayticket2's picture

the entire state is the same way....it's a race to bottom....the last guy pays the tab.  (and that might be Texas)

Took Red Pill's picture

Ever been to Greenwich or New Canaan in Fairfield County? It's dubbed the Gold Coast. Nothing like Hartford.

https://en.wikipedia.org/wiki/Gold_Coast_%28Connecticut%29

Rex Andrus's picture

Soros & Clinton pay a lot of minions to keep up the gates of hell.

SPQR 70AD's picture

that dont mean shit. the rich like in messico haiti india wherever always live large while they step over bodies on their way to the country club. 1% got all the money the rest can eat shit

Bigly's picture

Ever looked at the stately mansions near Elizabeth Park?

Not for nothing, but some of the classiest old mansions (i.e., not tacky mcmansions) are in Hartford...the west end.

Greenwich et al have a few, but primarily tacky new money, non-classy behemoths.

Hartford suffers in that it is not commutable to nyc.  FF county would be exactly where Hartford is currently if they were not an easy train ride into the city.

shankster's picture

Seen Texas books lately...not doing to good themselves.

ZD1's picture

Do you mean the entire state of Texas or the big cities of Houston, Dallas and Austin that are controlled by leftist Democrat lunatics? 

dirtyfiles's picture

" Moody’s called Hartford’s unions “a constraint” to trimming the city’s deficit. “Contractual salary increases and employee benefits are significant contributors to the city's long term structural imbalance,” the report read. Unions would have to make “significant concessions” for Hartford to narrow those deficits, it said"

now what?

Creepy_Azz_Crackaah's picture

I say shut down the gubmint, let go the gubmint employees, and sell off the gubmint's ill-gotten assets. Let the people hire their own trash pickup service, have volunteer fire departments (see Delaware for how well they work), use private security, private schools or home-school, etc. In the end, your bills will be MUCH lower and your liberty increased dramatically. Companies might even move back to the place.

Never One Roach's picture

Empower bosses to fire fed employees if they are not doing their job. Thaty would automatcially cut the fat by 20% overnight.

silverer's picture

"... In the end, your bills will be MUCH lower and your liberty increased dramatically..."

That's what I would expect to happen.

Quite honestly folks: there has to be some some wisp of an effect, ever so slight, just a wee bit, when you lever three trillion dollars a year out of taxpayer's wallets and put them into debt another 20 trillion dollars. Ya think?

what happened's picture

 

That's funny I call them corrupt.

Forbes's picture

Reduce the headcount. It's not as if they are revenue producing employees.

XBroker1's picture

Fake shooting sprees & related fake media coverage are expensive.

alexcojones's picture

Karmic revenge for Sandy Hoax.

Bitchezz

Anderson Coopers Gerbil's picture

Moar diversity is needed

Ex-Oligarch's picture

A city of 125,000 people issued $600 million in debt?

That must have been one hell of a party.

Ben A Drill's picture

I guess Jai Alai wasn’t a money maker after all.

aliens is here's picture

Wtf, why is that my problem or American peoples problem? Let them go bankrupt and no bails out. FK them DemonRats.

desertboy's picture

Apparently, corruption is deeply ingrained in the culture of Hartford.

Seasmoke's picture

Get rid of all the welfare bums. Otherwise known as public employees.

chrsn's picture

Bailout.  Because paying off a compulsive gambler's debts is a sure way to cure their behavior.

SPQR 70AD's picture

when you have a place like all cities in US where you got niggers millions of illegal peasants tax parasites then throw in parasite cops firemen teachers etc you will be bankrupt. so they throw the whole pile of stinking shit onto the taz payers and they say fuck you we are moving

Mazzy's picture

"The racial makeup of the city was 29.8% white, (just kidding, this is a deceptive figure),38.7% African American or black, 0.6% Native American, 2.8% Asian, 0% Pacific Islander, 23.9% from other races, and 4.2% from two or more races. 43.4% of the population were Hispanic or Latino, chiefly of Puerto Rican origin.[62]

Whites not of Latino background were 15.8% of the population in 2010,[63] down from 63.9% in 1970.[64]"

And of those remaining what percentage are elderly poor who couldn't get out in time, or crackheads/heroinheads who need a city to get their fix in?

FOUND THE PROBLEMS!!!

are we there yet's picture

Honey we can't be broke, we still have checks in our checkbook.

2banana's picture

2banana’s Rule:

Long term democrat rule + public unions + free sh*t army = misery, ruin and bankruptcy

The real solution for Hartford’s comeback:
1. Declare bankruptcy
2. Tear up all public union contracts and pensions
3. Ban all public unions
4. Throw corrupt democrat leaders in jail
5. Cut taxes to the bone
6. Watch city grow and blossom as working people and businesses flock there

InnVestuhrr's picture

All good except #8, My revised version

4. Terminate ALL democrat politicians and government union leaders

are we there yet's picture

Hartford used up all of its young white people who actually work. They need to make some new ones quick to rob.

venturen's picture

Vote for all Democrat government...and this is what you get! LET IT FAIL...take away the pensions....100% of it!

BiteMeBO's picture

Got a good friend who was CT State cop 20+ yrs until recently offered departing pension of 55% vs. waiting til later and possibly realizing less.  He took the 55%.  Don't have heart to tell him number will be going to zero soon.

2banana's picture

State police pensions will be the last to go or be downsized.

City public union pensions will be the first.

Cities can declare bankruptcy and their economic base can move just a few miles to avoid their taxes.

And being local - forcing homeowners into bankruptcy to pay ever increasing property taxes for your public union neighbor, there are local consequences (seeing these people on a day to day basis, local elections, etc.)

Robert A. Heinlein's picture

As I was reading down, I was thinking,'I wonder who has contol of this, I bet the dems'. Lo and behold, it is. No surprise.  Ok, now, do we raise taxes, or do we really raise taxes.  Both'm!  Pay up suckers. 

Thethingreenline's picture

Why is it, TTGL thinks aloud,
That those that bash the pensions on a daily basis,
Don’t have one?

TTGL