As Bronin Seeks Givebacks From Bondholders, Averting Bankruptcy … – Hartford Courant

It shouldn't come as a surprise that the two largest Wall Street debt rating agencies have now classified Hartford's bonds as junk.

Downgrades of that sort are exactly what we should expect when the mayor signals he's about to open talks with bondholders, asking them to accept less money. And he's not just signaling it, he's shouting it.

The problem is not the downgrades, it's what comes next an ugly process that doesn't usually lead investors to give back money when cities attempt it, several experts said Wednesday.

Still, Mayor Luke Bronin will give it the old college try. As he sees it, investors who hold more than $700 million in city bonds must be "part of the solution." The New York law firm he hired last week has a specialty in precisely that restructuring municipal debt.

Bronin's hiring of Greenberg Traurig to assess the city's options appears to have been a catalyst that led Standard & Poor's to lower Hartford's bond rating to BB, from BBB- late Tuesday, landing the city in the purgatory of credit quality known as "non-investment grade," or speculative.

In plain English, junk bonds.

Moody's Investors Service reached the same conclusion last fall, and both agencies still have Hartford on a negative watch for even more downgrades.

That means the city for all practical purposes can't borrow money these days. Bronin said he had no plans to do so anyway, but he could find himself in a nasty bind if state money doesn't come through by fall.

JENNA CARLESSO

The chart below shows a year-by-year breakdown of the citys debt service payments. There is a drop in fiscal year 2015 that reflects the citys move to restructure its debt, which pushed payments into the future. Those payments begin to rise significantly in fiscal years 2017 and 2018. The chart...

The chart below shows a year-by-year breakdown of the citys debt service payments. There is a drop in fiscal year 2015 that reflects the citys move to restructure its debt, which pushed payments into the future. Those payments begin to rise significantly in fiscal years 2017 and 2018. The chart... (JENNA CARLESSO)

If these ratings had been in place two years ago, Hartford would not have been able to borrow $66 million to build Dunkin' Donuts Park for the Yard Goats, certainly not at the low rates the city paid. The stadium authority's bonds are rated even lower than general city bonds.

Other than more embarrassment, none of this is bad news for the city, at least not in the sense of a new blow. On the contrary, it reflects bad news we already knew because Bronin has been screaming it from the rooftops of every building in Hartford County: Without a combination of new state money, city spending cuts and union concessions, Hartford won't be able to pay its bills starting later this year.

Now, Bronin is adding bondholders to the list of people who have to give something back.

All of this could ultimately help Hartford homeowners, residents and businesses, if it leads to a stable city. It's more likely to lead to lower taxes than higher taxes if it results in a break in the $44 million in bond debt payments the city owes this year, rising to $75 million in four years.

And that's what has Wall Street nervous. Investors are real people, some of them middle-class holders of tax-free bond funds. If they don't chip in, Bronin will tell them, the city could end up in bankruptcy where no one wins.

The trouble is, extracting givebacks from bond investors is like herding cats, then asking those felines to agree to walk away from their food and go hungry a couple of days every week.

"When you have municipalities that reach out to their debt-holdersoftentimes what each party believes is fair and reasonable is very far apart," said Tim Heaney, senior portfolio manager for municipal bonds at Newfleet Asset Management in Hartford, an affiliate of Virtus Investment Partners with $12 billion under management.

"It's unlikely that bondholders are going to come to the table and say 'OK, we'll take a 25 percent haircut,'" said Heaney, who was speaking generally about bondholder talks, and whose company does not hold Hartford debt.

More likely: Everyone trudges into bankruptcy court if the only way to avoid it is a voluntary haircut by bondholders, Heaney and others said.

"The divide between what creditors would be willing to accept ... and what the municipality wants is often much too wide for any agreement to occur outside of the courts," Heaney said.

Consider that the list of bonds downgraded by S&P goes on for several pages, showing a total of 21 debt issues ranging from $6.5 million to $172 million, each with multiple tranches of maturity dates.

"Do you know how difficult it is to track the owners of bonds? I just don't know how they would do this," said one person familiar with municipal debt issues.

And if you could get everyone together, the person said, "How would you convince a bondholder to take a haircut if the unions aren't taking a haircut? Good luck with that ... You go into bankruptcy to have these discussions because then you have all the players at the table."

In or out of bankruptcy, Heaney said, "You need all sides of the table to come together."

That describes the challenge Bronin, city corporation counsel Howard Rifkin and Nancy Mitchell, the partner from Greenberg Traurig on the case, will face in the coming weeks. It explains why Bronin must extract concessions from the police and city hall unions, as he did from the firefighters.

"The absence of a state budget ... increases the urgency and the severity of what we face," Bronin said.

Even if Gov. Dannel P. Malloy and lawmakers come up with $40 million or $50 million in new money for Hartford, Bronin said Wednesday, "We will still have to have conversations with our bondholders ... There has to be some debt restructuring because our objective is not just to buy a year or two."

Mitchell is co-chairwoman of a restructuring practice at Greenberg Traurig that has worked on both sides of many public bond restructuring deals outside of bankruptcy, Bronin said. "They have extensive experience in bondholder negotiations."

So the team is assembled. The challenge of averting bankruptcy is steep. And with a possible default looming as soon as this year, the starting bell has rung.

See the original post:

As Bronin Seeks Givebacks From Bondholders, Averting Bankruptcy ... - Hartford Courant