Fitch Rates New Britain, Connecticut GO Refunding Bonds 'A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 11, 2002

Fitch Ratings assigns an 'A' rating to New Britain, CT's (the city) $4.4 million general obligation refunding bonds, series 2002. The city's outstanding $192.2 million fixed-rate general obligation bonds are also rated 'A' by Fitch. The series 2002 bonds will sell on Oct. 22 via negotiation through William Blair & Company, LLC. Proceeds will be used to advance refund the 1995 general obligation bonds, series A and B with an expected net present value savings of 3.7% of the refunding principal.

The underlying 'A' rating reflects the city's financial performance, characterized by spending controls and overall solid management. Since the regional recession of the early 1990s the city has maintained thin fund balances despite the slow tax base growth and below average income levels. The debt burden is high due to pension obligation bonds, yet a share of self-supporting water and sewer debt eases pressure on the general fund. Residential employment has decreased in three of the past four years and unemployment has remained above average, partially due to the downsizing of Stanley Works, one of the city's largest employers. While the service sector has provided some job growth with expansions of two local hospitals, the city's unstable employment base is a credit concern. Further, maintenance of the city's rating is contingent on its ability to sustain its financial position in response to potential state budgetary pressure that is expected to impact local governments throughout the region.

Located approximately eight miles southwest of Hartford with a population slightly over 71,000, New Britain is a residential community with its own employment base composed of several sectors. Since the city has endured manufacturing job losses, the economy has shifted toward other sectors such as F.I.R.E. and services where some job growth is evident. Property tax values from the 2001 grand list (fiscal 2003 budget) are barely above 1997 levels. However, the tax base is generally broad, with the top 10 taxpayers representing only 6.9% of assessed valuation and a growing proportion spread among the residential property component. This tax composition, in turn, partly results from the loss of industrial property and jobs. Currently, the city is in the process of revaluation for the grand list of 2002; results have not been determined. Wealth levels lag those of the state and nation. The unemployment rate of 6.5% in July 2002 is slightly above the 6.2% reported during the same period last year, but well above the 4.1% and 5.9% of the state and nation, respectively.

Historically, the city has recorded operating surpluses (on a generally accepted accounting principles (GAAP) basis), even during the recessionary period in the early 1990s, and closure of an accumulated fund deficit at fiscal year-end 1989. The city's sound financial position is further evident in fiscal 2001 with an unreserved/undesignated fund balance of $4.3 million or 2.7% of expenditures and transfers out. Similarly, unaudited fiscal 2002 results project a $775,000 surplus and an unreserved/undesignated fund balance of $4.5 million. Despite the tax (mill) rate increases in recent years, property tax receipts have been steady, also contributing to thin fund balances. The state aid, mainly for education, grew significantly throughout the last decade but may potentially be altered due to the state's budgetary pressures. In the past 10 years, officials have tightened spending, except for schools and rising pension costs. The city's unfunded actuarial liability for its police and fire pension system was eliminated by the issuance of bonds in 1998. Furthermore, the workers compensation fund's unfunded liability was also eliminated with bond proceeds in 2000. Most labor contracts are settled except Police Officers and Managers and Professional Employees whose contracts are currently being negotiated amicably, and future wage increases are expected to be modest.

New Britain's debt burden is very high, with net debt at $2,748 per capita and 9.07% of market value. Amortization is average. The capital plan focuses on the subway, sewer maintenance, and water and sewer, which is expected to be self-supporting through user fees. Also, the city plans on financing the renovation of the last three schools with bond proceeds worth approximately $44 million, a large portion of which is expected to be reimbursed by the state.