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June 16, 2020

S&P lowers East Haven bond rating

PHOTO | New Haven BIZ
By Michael C. Bingham

S&P Global Ratings has lowered its rating on the town of East Haven’s general obligation (GO) debt to 'A' from 'A+', the credit rating agency announced Monday. At the same time, S&P Global Ratings assigned its 'A' rating to the town's series 2020 A and B GO bonds. The outlook on all ratings is negative.

In 2014 S&P had raised the town’s credit rating from ‘BBB+’ to ‘A-’, and then raised it again in 2016 from ‘A-’ to ‘A+’. The latter rating was reaffirmed in 2018.

Also, last June Moody’s Investors Service raised East Haven’s credit rating from A3 to A2.

"The downgrade reflects our view of the town's reduced reserves as a result of a general fund deficit in fiscal 2019 and projected deficit for fiscal 2020 to levels that are no longer commensurate with those of higher-rated peers," said S&P Global Ratings credit analyst Anthony Polanco in announcing the downgrade.

“Our rating action incorporates our view regarding the health and safety risks posed by the COVID-19 pandemic,” Polanco explained. “Absent the implications of COVID-19, we consider the town's social risks in line with those of the sector, but we believe East Haven's high property-tax rate poses some affordability challenges relative to its below-average socio-economic metrics if management needs to increase the tax levy beyond current estimates to remedy any structural imbalances.

"The negative outlook reflects our view that the sudden economic deterioration and adverse effects of the pandemic have caused a high degree of revenue uncertainty that will challenge the town's finances over our outlook period and potentially result in a weaker financial position that is no longer in line with the rating level," added Polanco. “Our outlook is generally for two years, but we see some risks due to the COVID-19 pandemic and U.S. recession over the next six to 12 months.”

“While management plans to rebuild reserves going forward and it has adopted a fiscal 2021 budget with conservative assumptions, we believe recession-related economic and financial pressures will constrain the town's budget and challenge management's ability to materially improve budgetary reserves in the short term,” Polanco explained.

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