UPDATE 2-Exit from bankruptcy boosts Central Falls, R.I. rating

Fri Oct 26, 2012 4:18pm EDT

Oct 26 (Reuters) - Moody's Investors Service upgraded its credit rating for Central Falls, Rhode Island, to B2 from Caa1 after the tiny city's emergence from Chapter 9 bankruptcy.

The credit rating agency also revised its outlook for the city to positive. The actions affect $14.7 million of outstanding general obligation bonds.

A state-appointed receiver for the city won court approval for a bankruptcy plan on Sept. 6, laying out an exit course just 13 months after its bankruptcy filing.

Central Falls' widely watched bankruptcy plan balances the city budget by slashing pensions and raising taxes, while leaving bondholders unscathed.

A Rhode Island law, passed as Central Falls' insolvency reached a crisis point, protects bondholders by giving them a priority lien on property tax revenue. The law is likely to spur Central Falls to continue making general obligation debt service payments, Moody's said.

The city is also expected to continue making full payments toward its unfunded pension liability.

"I am thrilled that the hard work and accomplishments in the city of Central Falls has been recognized," said Rhode Island Revenue Director Rosemary Booth Gallogly, who orchestrates the state's oversight of distressed municipalities.

"This is yet another positive sign that we have begun a new chapter for the city."

Central Falls, one of Rhode Island's poorest cities, still faces serious financial challenges, including growing expenses, weak projected revenue growth and a small and shrinking tax base, Moody's said.

Since former Mayor Charles Moreau resigned in September and agreed to plead guilty to a federal fraud charge that he steered contracts to board up foreclosed houses to a long-time friend and political contributor.

Central Falls has scheduled a special primary election for Nov. 6 and a special election on Dec. 11 to elect a new mayor to serve the rest of Moreau's term.

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