March 22 (Reuters) - The Rhode Island town of North Providence had its near-junk credit rating boosted two notches on Friday after it used a windfall legal settlement with Google Inc to fix its troubled pension system.
Standard & Poor’s Ratings Services on Friday raised the town’s general obligation bond rating to BBB-plus from BBB-minus.
North Providence received $60 million out of the $500 million nationwide settlement with Google. The town then won permission from the U.S. Justice Department to use $20.6 million of that chunk to help plug a $22.5 million shortfall in its police pension fund.
The settlement stems from Google’s admission in 2011 that it improperly assisted Canadian online pharmacy advertisers to run ads that targeted the United States, according to Rhode Island officials.
The windfall took North Providence’s police pension fund from critically underfunded at 45.3 percent in 2010 to 94.9 percent as of July 1, 2012, S&P said.
That is far healthier than most public pension funds in the United States.
Another Rhode Island city, East Providence, also planned to use $49.2 million of its $60 million in settlement money to narrow its $105.8 million unfunded pension liability. S&P has not taken any rating actions on that city in connection with the settlement, a spokesman said.
S&P’s upgrade of North Providence also reflects the town’s three straight years of general fund surpluses after its finances had weakened through 2010, said S&P analyst Henry Henderson in a statement.
That success has come largely because the town issued $10.26 million of deficit reduction bonds. But S&P believes the structural balance is sustainable, even as the town deals with potential pressure from unsettled labor contract negotiations and school operations, Henderson said.
S&P’s outlook on North Providence is stable. The town has $30.2 million of general obligation bonds outstanding as of fiscal 2012.