As Hartford Mulls Bankruptcy, Bond Insurer Offers to Help Postpone Payments -- Update
September 25 2017 - 3:47PM
Dow Jones News
By Heather Gillers
Hartford's biggest bond insurer said it had offered to help the
city postpone payments on as much as $300 million in outstanding
debt, in a move designed to help prevent a bankruptcy filing for
Connecticut's capital.
The insurer, Assured Guaranty Ltd., made the announcement before
a Monday conference call between Hartford and its bondholders.
During the call Hartford Mayor Luke Bronin said postponement of
the city's debt would be inadequate without other fixes such as
more revenue from the state, according to a statement released by
the city after the call.
"I appreciate Assured's willingness to have constructive
discussions," the mayor said, according to the statement, but "this
administration is not interested in pushing off this challenge for
another mayor or another generation to fix."
Under Assured Guaranty's proposal, debt payments due in the next
15 years would instead be spread out over the next 30 years without
bankruptcy or default. The city would issue new longer-dated bonds
and use the proceeds to make the near-term debt payments.
Assured Guaranty and another insurer, Build America Mutual,
would insure the new bonds, said an Assured Guaranty spokesman.
Assured Guaranty backs 57% of Hartford's roughly $550 million in
outstanding general obligation debt and would be on the hook for
any shortfall in payments should the city enter bankruptcy. Build
America Mutual backs $103 million in Hartford debt. About $163
million in Hartford bonds are held by U.S. mutual funds.
Hartford is in the middle of a fiscal emergency because of a
weak tax base and a budget deficit of nearly $50 million. It also
has one of the lowest credit ratings in the nation. Making matters
worse, Connecticut lawmakers have been unable to reach agreement on
a state budget more than two months into the fiscal year, leaving
Hartford short of state funding.
City officials have warned that the city would likely file for
bankruptcy this fall unless the state provides more help. Mayor
Luke Bronin has said the city cannot afford to make its bond
payments on time and will need to restructure its debt even if
Hartford does receive state assistance.
The offer from Assured Guaranty would provide Hartford with
short-term budgetary relief but wouldn't reduce the city's total
liabilities. In fact, it would add to them because delaying when
the debt comes due would increase interest costs.
The city's debt payments are scheduled to jump from $6.6 million
to $56 million in the next four years, according to city financial
disclosures. Assured Guaranty's plan would lower those payments by
pushing some of the debt out as far as 2047.
It is common for states to issue bonds as a way of refunding old
debt, both to take advantage of low interest rates and to put off
debt payments. But Hartford, which is rated deep in junk status and
has hired restructuring advisers, would likely be unable to
complete such a deal without insurance.
"Once you hire restructuring advisers, investors steer clear,"
said Matt Fabian, partner at Municipal Market Analytics, a
municipal bond research firm.
Of cities rated by Moody's Investors Service, only Stockton,
Calif., which emerged from bankruptcy protection two years ago, and
Atlantic City, N.J., which narrowly avoided it, have lower ratings
than Hartford.
Assured Guaranty's proposal takes advantage of state legislation
passed in July that for the next five years allows cities to
refinance debt with 30-year bonds instead of restricting them to
20-year bonds.
Hartford could receive more than $40 million in aid under one
version of Connecticut's fiscal 2018 budget, which state lawmakers
are still debating. But that alone wouldn't be enough to keep
Hartford out of bankruptcy, the city said in a notice about
Monday's conference call.
Assured Guaranty's proposal wouldn't help Hartford solve all its
problems. A continued delay in the budget could strain the city's
ability to make payment on a $20 million short-term loan due on
Oct. 31.
The insurer's proposal could be "a part of the solution," said
the Assured Guaranty spokesman. "It's not the solution in
itself."
Write to Heather Gillers at heather.gillers@wsj.com
(END) Dow Jones Newswires
September 25, 2017 15:32 ET (19:32 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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