Providence A3 bond rating holds steady ahead of school bond issue

The city of Providence has maintained the above-average credit rating it received last year, Mayor Brett Smiley announced Thursday. The city’s upcoming $125 million bond issue to improve three elementary schools is rated even higher.

On July 30, Moody’s Ratings reaffirmed the A3 rating it gave Providence’s general obligations bonds in March 2023, when it upgraded the city from its Baa rating. But the century-old firm, which rates the creditworthiness of corporate and government bonds, gave an even-higher Aa3 rating to the city’s public schools bond that same day.

A3 bonds are considered low-risk and upper-medium-grade investments. Aa3 bonds are considered to be of higher quality and have very low risk.

Proceeds from the Rhode Island Health and Education Corporation Public Schools Revenue Bond will be used for renovations and improvements at Mary E. Fogarty Elementary School, Frank D. Spaziano Elementary School and Harry Kizirian Elementary School, said Samara Pinto, a city spokesperson. 

The $125 million bond issue is expected to close in the next 30 days, Pinto said. 

The new school bond, which saw preliminary approval from the Rhode Island Health and Educational Building Corporation on June 26, is expected to close at the end of August. That prompted the Moody’s report, which attributed the bond’s Aa3 rating to the strength of the corporation’s Intercept Program. The program is “notched” off the state’s own Aa2 rating and “reflects the program’s strong position in the state’s hierarchy of debt and spending priorities,” according to the Moody’s report.

The bonds’ first interest payment will arrive in November, its first principal payment comes in 2026 and it will reach full maturity in May 2044. At the building corporation’s June meeting, Dominick Setari of Acacia Financial presented the bond on behalf of the city, and said Providence is in good shape financially despite persistent challenges of pension funding. He cited the A3 upgrade rating as well as the Intercept Program and a general obligation pledge from the city as solid reasons to support the bond issue.

“We have worked diligently to balance our financial operations while making strategic investments in our city’s future. This rating is a testament to our diverse economy and prudent approach to managing long-term liabilities,” Smiley said in a statement.

Moody’s analysis noted: “The city’s diverse economy … is expected to support sufficient revenue raising ability to maintain balanced financial operations and continue the city’s funding commitment to reduce the unfunded long-term liabilities.” 

Moody’s reviews the city’s credit rating annually. While the general obligation bonds maintain a high rating, lease revenue bonds from the Providence Public Building Authority and Providence Redevelopment Agency are rated “Baa1.”

Moody’s characterizes the city as having below-average income, a limited financial position and increased leverage due to an unfunded pension liability, not an uncommon problem in city and state finances nationwide. 

The city also had about $644.8 million in debt at the end of fiscal year 2023. But the city is “stable,” Moody’s noted, with improvements to its reserves and liquidity in the past several years, as well as more than a decade of smart contributions to the unfunded pension liability.