%1

Hartford Mayor Luke Bronin said the Connecticut capital will negotiate with bondholders and the state to “end up with a debt-service burden that is manageable over the long term,” though he declined to say whether that may impose losses on owners of its debt, Bloomberg News reported yesterday. “You use the terms restructuring, refinancing, rescheduling, refunding and there’s probably a Venn diagram where they overlap and then there are ways in which they differ," he said yesterday. "The terms of any bond deal will have to be negotiated and, again, they will depend to a large extent on what the state is willing to do as part of a long-term solution.” Hartford’s bonds rallied last week after Connecticut lawmakers passed a budget by a veto-proof majority that would provide the city with a financial rescue to keep it out of bankruptcy. Bronin had said that he would need to seek court protection from creditors if Connecticut didn’t step in. The budget would give Hartford as much as $48 million, enough to cover almost all of its current deficit, and lend the state’s backing for a debt refinancing. Refinancing some of the city’s $620 million debt at lower rates would allow it to avoid a spike in interest and principal payments starting in 2021 by extending maturity dates on the securities. About $225 million of Hartford debt wasn’t insured against default when it was issued.

Many cities in Connecticut are reconsidering their spending decisions as they prepare to fill new funding gaps following a two-year, $41 billion budget approved last week by state legislators, the Wall Street Journal reported today. The new budget agreement, which cleared enough votes in the state House and Senate to survive a veto from Gov. Dan Malloy, provided the state’s capital of Hartford with $40 million designed to help that city avoid bankruptcy. But it left other cities with at least $30 million less than the previous budget, according to a partial tally of cuts by the Connecticut Conference of Municipalities. That means some will likely have to resort to service cuts or tax increases. One major ratings firm, S&P Global Ratings, said Friday that “weak credit conditions across local governments…could persist for some time” due to reduced amounts of state aid and a stagnant statewide economy.

One of Hartford’s biggest bondholders isn’t too worried the distressed Connecticut's capital city will default on its debt, even though Moody’s Investors Service has warned that one could come as soon as next month, Bloomberg News reported yesterday. Lyle Fitterer, the head of municipal securities investments for Wells Fargo Asset Management, said in an interview that the state is likely to help pull Hartford back from the financial brink. Wells Fargo holds $40 million of Hartford general-obligation bonds, about $26 million of which is insured against default, according to Sarah Kerr, a company spokeswoman. That’s a bigger stake than any other firm that has disclosed its holdings in regulatory filings, according to data compiled by Bloomberg. The prices of Hartford bonds have tumbled since the 123,000-resident city began exploring a potential bankruptcy and credit-rating companies downgraded it deeper into junk. Its general-obligation bonds due in 2024, one of the most frequently traded securities, have traded for an average of 71 cents on the dollar this month, down from more than 100 cents as recently as April. Read more.

In related news, Connecticut cities seeking state assistance with debt payments would be prohibited from filing for bankruptcy under the latest budget proposal, the Hartford Courant reported today. In the plan, municipal leaders can apply to have the state pick up a portion of their annual debt payments, a move that is being considered in the cash-strapped capital city. A new draft of the legislation now being weighed by lawmakers shows cities would be banned from seeking bankruptcy protection if they apply for the assistance. The language appears to be aimed at Hartford Mayor Luke Bronin, who sent a letter to Gov. Dannel Malloy and legislative leaders last month threatening to file for bankruptcy if the city didn’t get additional state aid soon. Read more.

The majority leader in Connecticut’s Democrat-controlled House of Representatives said he “can’t envision any scenario" in which Hartford would seek to declare bankruptcy if a bipartisan budget that provides a financial lifeline to the capital city becomes law, Bloomberg News reported yesterday. Matt Ritter, who represents Hartford and is the second-most-powerful Democrat in the Connecticut House, said that the budget would give the city about $20 million in aid from a fund for distressed municipalities and provide $20 million a year to cover costs on its bonds. Hartford would also be able to issue debt backed by Connecticut, which would allow it to save money by refinancing at lower rates.

Public-sector workers in cash-strapped Hartford, Conn., are on edge as city officials have said the state capital could seek authority to file for bankruptcy as early as November, the Wall Street Journal reported today. State lawmakers, who are confronting their own two-year deficit of $3.5 billion, will have a big say in how that plays out. Legislative leaders say they reached a tentative state budget agreement that would give Hartford additional aid, and they expect to approve it this week. But after a series of false starts in the budgeting process, some are still uneasy. In early September, city officials warned Gov. Dannel Malloy and state lawmakers that Hartford wouldn’t be able to pay all of its bills within 60 days and could seek authority to file for chapter 9 bankruptcy in early November unless the legislature provided the city with more cash. Unions representing public employees say they are worried their members will be asked to make unreasonable sacrifices to fix Hartford’s financial problems even if the city doesn’t proceed with bankruptcy. Several municipal contracts have expired and need to be renegotiated.

Connecticut would guarantee bonds issued to refinance Hartford’s debt and pay $20 million of the city’s interest bills over the next two years as part of budget agreement hashed out by state lawmakers that would help rescue the capital from financial collapse, Bloomberg News reported yesterday. The provision in the spending plan, if passed by lawmakers and signed by the governor, may allow Hartford to avoid becoming the biggest city to go bankrupt since Detroit four years ago. Mayor Luke Bronin has said he would need to explore that step if the state doesn’t pass a budget that helps close the city’s $50 million budget gap and gives it a stronger hand in negotiations with public employees. He also wants concessions from bondholders. Bronin added that he hopes the lawmakers’ proposal "changed the course a little bit.”

A San Antonio, Texas-based insurer for public school districts and community colleges filed for chapter 9 bankruptcy on Wednesday, the San Antonio Express-News reported yesterday. The Texas Association of Public Schools Property and Liability Fund, also known as TAPS, sought protection in U.S. Bankruptcy Court in San Antonio, with more than 175 school districts from around the state listed as creditors, including Somerset, North East and Northside. TAPS is a self-insurance pool that provides property, legal liability and other types of coverage through a cost-sharing arrangement among its members, akin to a mutual insurance company. Its financial troubles have been a few years in the making. TAPS has experienced an “unprecedented number of claims across all lines of coverage, particularly in connection with large hail claims” in recent years, Chairman Ray Lanoux said in a message to members in its 2015-2016 annual report. TAPS reported assets of almost $5.6 million and liabilities of $8.5 million, giving it a negative net worth of almost $3 million.

With questions stirring about the impact bankruptcy would have on Hartford, city leaders have called two public meetings to examine its effects on other cities and towns, the Hartford Courant reported today. Panelists include Kevyn Orr, the former emergency manager for Detroit, which filed for bankruptcy in 2013; Mayor James Diossa of Central Falls, R.I., which sought chapter 9 protection in 2011; and Don Graves, senior director of corporate community initiatives at Key Bank. The discussions are aimed at shedding light on the chapter 9 process in other cities, said Mayor Luke Bronin said. “As we consider all of our options for putting the city of Hartford on a path to sustainability and strength, it’s essential that our residents are a part of that conversation,” he said. “We’ve had a number of requests for a more detailed discussion of what bankruptcy would mean for our city.”