Central Falls, RI Emerges From Bankruptcy with Higher Rating

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Nov 1, 2012

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Last year, the tiny town of Central Falls, Rhode Island filed for Chapter 9 municipal bankruptcy. Watched by many, the city and state then began to take measures to recover from unfunded pensions and unpaid taxes. Now, as the first Rhode Island city to ever file emerges from bankruptcy, Moody’s Investors Services gives Central Falls a two point rating boost, offering hope for not only Central Falls, but fiscally-troubled towns across the country.

Over the past thirteen months, city officials worked with the bankruptcy court to draft a repayment plan to balance the town’s strained budget. As part of the recovery plan, many businesses and property owners will pay more in taxes, pension holders will be paid less, while bondholders are protected under a new state law, providing them priority lien on property tax revenue, according to Reuters. In other words, payments will be made to bondholders, which will ultimately allow money to flow back into unpaid pension liabilities. 

The exit rating from Moody’s went from a Caa1 to B2. A Caa1 rating deems the debtor of “poor quality and at very high credit risk,” while B2, at two steps up, means that the debtor is “judged as being speculative and a high credit risk.” Although this is a step in the right direction, the increase in rating does not mean Central Falls is out of the woods. Moody’s still projects many financial hurdles in “growing expenses, weak projected revenue growth and a small and shrinking tax base,” reports Reuters

While Central Falls continues to work toward a better financial environment, many are viewing the positive ratings as an endorsement for Chapter 9 filings. With several other cities across the country filing over the past few years, some have voiced concerns over the effectiveness of municipal bankruptcies. But if Central Falls, a town with heavy financial woes, can manage a successful exit from bankruptcy, other cities can too. 

To read more about Central Falls, Rhode Island’s bankruptcy, or to learn about Chapter 9 and other types of bankruptcy filings, see the following articles:

When Towns Go Bankrupt: Chapter 9 Filings Increase From California to Rhode Island
Atwater, California: Another Calif. City on the Verge of Bankruptcy 
What Is Bankruptcy? 

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