HARTFORD STADIUM AUTHORITY LEASE REVENUE BONDS, SERIES 2015A (CT)
CUSIP 416465AK8, 4.00% Coupon Due February 1, 2042
October 12, 2016
Dick Larkin
Director of Credit Analysis
Stoever Glass & Co., Inc.
P: (862) 432-8818
E: [email protected]
Bonds were issued in 2015 to build this 6000 seat stadium for the Hartford Yard Goats, a “AA” minor league
baseball team. It was expected to be completed for opening day in 2016, but cost overruns and faulty construction
problems have made even a 2017 opening day doubtful. While the stadium looks ready to go, hundreds of defects
have been discovered, making operation unsafe. The surety company, Arch insurance, has now taken over the
project, hired new contractors and believes that the ballpark will be operable on opening day in the Spring of 2017.
Arch insures the project, but does not guarantee debt service. If Arch cannot complete on time, the city would
probably be able to recover some damages from Arch, which would not guarantee timely debt repayment.
The bonds are backed by a promise to appropriate funds to repay debt by the city. That obligation is not a general
obligation of the city, and a failure by the city council to include payment in future budgets is not enforceable.
In better times, when city finances were more stable, investors believed that the city would ensure the success of
the stadium. Now, Hartford’s new first-year mayor has indicated publicly that the city may soon be insolvent. This
raises doubt about the city’s contingent backstop to appropriate funds to repay debt. The stadium is not expected to
be self-supporting (meaning stadium operations will not be sufficient to repay this debt), so repayment depends on
transfers from Hartford’s General Fund.
Hartford has the typical characteristics of an older northeastern city:
Population loss of 21% since 1970’
High unemployment within the city (although the surrounding region fares much better);
Below average income
Older housing stock (50% of city housing was built before 1949, compared to only 30% for the state).
On the other hand, Hartford has three large stable insurance companies that account for about 10% of all taxable
properties. In addition, as the center of state government it has a base of public employees (which fluctuates
depending on the fiscal situation of Connecticut).
Hartford’s bond ratings have been under pressure for years. In 2010, its general obligation bonds were rated as
high as “Aa3” by Moody’s. Recurring deficits and financial gimmicks to balance the budget have caused Moody’s to
downgrade their rating to “Baa1”. Standard and Poor’s last month lowered Hartford’s ratings by four notches, to
“BBB” from “A+”. S&P is the only bond rater with a rating on the ballpark project, which is now “BBB-“, just barely
above “junk bond rating” status.
HARTFORD GENERAL FUND AND DEBT SERVICE FINANCIAL OPERATIONS
2012 TO ESTIMATED 2016
FY Ending June 30 ($000)
2012
2013
$573,734
$549,643
Property Tax
$277,245
$255,546
Intergovermental Aid
280582
$280,695
Total Revenue
Total Expenditures
Education
Benefits
Sundry
Debt Service
Excess of Revenue vs. Expense
2014
$557,361
$256,765
$286,236
2015
$566,606
$262,364
$289,332
2016 est.
$533,815
$265,682
$244,231
$532,626
$283,987
$64,501
$22,523
$36,004
$521,577
$284,008
$66,941
$15,068
$33,402
$552,418
$283,006
$86,898
$36,636
$20,157
$571,021
$283,995
$85,692
$63,000
$9,728
$533,815
$284,008
$65,693
$36,028
$23,365
$41,108
$28,066
$4,943
-$4,415
$0
In recent years, the city has balanced its budget by debt refundings, which reduced near term payments for 3 years,
while pushing the skipped payments to later years. The city has increased its outstanding debt by 87%, but these
maneuvers have actually decreased budget payments by 39%. One positive factor: the city’s debt is still paid fairly
rapidly, with about 50% paid within 10 years, so this could continue to be a source of budget balancing in future
years.
Annual Debt Service Artificially Lowered by Refundings
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2016
2017
General Obligation Debt Service at June 30 2015
2018
2019
General Obligation Debt Service at June 30 2016
2020
A default by Hartford on these bonds would irreparably damage Hartford’s ability to borrow money. In addition,
default on bonds by the state capital’s city would bring further embarrassment to the State of Connecticut, which has
seen its own bonds being downgraded this year.
While debt payments on the $63 million stadium bonds are only about $4.2 million per year, the city’s recent actions
and announcements of pending insolvency put these bonds at risk. Because the stadium is not an essential
service for Hartford, it raises the question of whether Hartford would cease bond payments in order to conserve
cash to pay for more important services, like public safety..
These bonds are not suitable for conservative investors. However, they may represent an income opportunity at
today’s low prices since the city’s rating downgrades of the last month by S&P and Moody’s. Ultimately, investors
would have to believe that the state would somehow intervene if default risk increases. That is not an unreasonable
assumption.
About the Author
RICHARD P. LARKIN, Stoever Glass & Co., Inc.
Richard Larkin, a recognized 41 year industry veteran, has joined SG & Co. as Director of Municipal Credit Analysis. Mr.
Larkin began his career in credit rating analysis at Standard & Poor's in 1975. After rising through the ranks in various
analytical and management positions, Dick left S&P as its Chief Municipal Rating Officer, responsible for municipal rating
policy, practices, governance and criteria
“Dick is a unique resource to Stoever Glass' municipal clients. His knowledge in specific issues and areas of the municipal
bond industry aids our representatives and their clients in making educated decisions, in a sector where this type of
research is unique,” said Roland Stoever of Stoever Glass.
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