HARTFORD COULD DEFAULT ON ITS DEBT AS SOON AS NEXT MONTH, MOODY’S SAYS (Source Zero Hedge)

The City of Hartford is likely to default on its debt as early as November without additional concessions from the State of Connecticut, 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.