State Bond Rating Earns Bump Up by Ratings Agencies with New Issue Imminent

With just over a month remaining in his four-year term as Connecticut’s State Treasurer, Shawn T. Wooden is once again sharing some good news, driven mainly by an influx of federal money into state coffers spurred by the Congressional response to COVID-19.

Wooden announced in recent days that S&P Global Ratings (S&P) has upgraded the State’s General Obligation (GO) bonds credit rating from “A+” to “AA-”.  At the same time, S&P upgraded the State’s Special Tax Obligation for Transportation Infrastructure Purposes (STO) bonds from “AA-” to “AA” and upgraded the State’s University of Connecticut bonds (UConn) from “A+” to “AA-”.  Additionally, S&P upgraded State-backed bonds issued by quasi-public agencies.  All credit rating changes came with “Stable” outlooks. 

It is in some ways déjà vu all over again for Connecticut’s bond ratings.  In 2021, the State’ GO credit ratings were upgraded by all four of the major credit rating agencies within a six-week period, marking the first such credit rating upgrades for the State in two decades, the most recent being in February 2001.

“Before the series of credit rating upgrades that began in March 2021, three of the four rating agencies rated the State’s GO bonds in the lower single ‘A’ category,” said Treasurer Wooden. With the  announcement this month by S&P,” all four of the GO bond credit ratings are now in the higher ‘AA’ category.”

The decisions, Wooden explained, recognized “Connecticut’s smart fiscal policies, financial discipline and improving fiscal trajectory. However, the real winners today are the residents of Connecticut because this rating upgrade will help lower borrowing costs for projects and services across the state, saving taxpayers millions of dollars.”

Governor Ned Lamont had a similar reaction to the ratings agencies upgrading Connecticut bonds. 

“Connecticut taxpayers should celebrate today’s news. This credit rating increase will mean lower costs for critical projects that move our state forward. It is a signal to the businesses and residents that our state is on the right financial path, that we have shown a commitment to putting our fiscal house in order, and we are continuing to make significant progress to address our pension and other postemployment benefit liabilities. S&P recognizes the progress that has been made and that Connecticut is getting its mojo back.”

In its notice to investors, S&P indicated that “The upgrade on the state’s GO debt reflects our view of Connecticut’s sustained positive financial results and building of high reserve levels during a recent period of economic and revenue growth, while also demonstrating its commitment to structural budget balance and curbing future growth of the state’s very high debt, pension, and other postemployment benefit (OPEB) liabilities, which we expect will continue in future biennial budgets.”

This rating upgrade came after Treasurer Wooden led presentations to each of the four credit rating agencies earlier this month.  The presentations highlighted the State’s strong fiscal controls and discipline. It also included a detailed analysis of the State’s reserves, liquidity, debt levels, pension funding, employment and net migration, and comparisons to other higher-rated states.

Treasurer’s Office has announced plans to offer $900 million of General Obligation Bonds in three series during the week of November 28:  

·         $450 million 2022 Series E Bonds to fund new projects (including municipal and other grants, economic development and housing);

·         $250 million 2022 Series F Social Bonds to fund school construction; and

·         approximately $250 million of 2022 Series G Refunding Bonds to refinance previously issued bonds to lower interest rates and capture debt service savings.

Looking ahead to the legislative session that begins on January 4 – also that day that Gov. Lamont begins his second term and Erick Russell, elected on Nov. 8, becomes State Treasurer, State Office of Policy and Management Secretary  Jeffrey Beckham said “As we develop next year’s budget, this credit rating increase sends strong signals for how we should proceed in the future. The budget we release in February will include an extension of the bond covenants that S&P stated as a key reason for our upgrade. If we are going to continue the positive progress made under this administration, those bond covenants and associated benefits must be a part of the final budget bill.”

More information on the State's bonding programs is available at www.buyCTBonds.com