One of Hartford, Connecticut’s biggest bondholders isn’t too worried the distressed capital city will default on its debt.
Lyle Fitterer, the head of municipal securities investments for Wells Fargo Asset Management, said in an interview that Hartford has options for pulling itself back from the financial brink. Wells Fargo holds $40 million of Hartford general-obligation bonds, about $26 million of which is insured against default, according to Sarah Kerr, a company spokeswoman. That’s a bigger stake than any other firm that has disclosed its holdings in regulatory filings, according to data compiled by Bloomberg.
“We don’t think the state wants to see Hartford file bankruptcy,” he said, though the firm hasn’t added to its investment recently.
The prices of Hartford bonds have tumbled since the 123,000-resident city began exploring a potential bankruptcy and credit-rating companies downgraded it deeper into junk because of the risk of a default as soon as next month. Mayor Luke Bronin has warned that it may need to seek court protection from creditors if Connecticut doesn’t enact a budget that provides a financial rescue.
A bankruptcy by Hartford would be the biggest by a U.S. city since Detroit’s four years ago, and lawmakers have been working on a plan to prevent that from happening. Municipal bankruptcies are extremely rare, given that local governments can typically raise taxes to cover their obligations. Hartford is hobbled in part because its property taxes are already the highest in the state and much of its property, including government buildings, is tax exempt.
A bipartisan budget that the legislature may vote on as soon as this week would give Hartford about $20 million in aid and provide $20 million a year to cover costs on its bonds, said Matt Ritter, the majority leader in the state’s Democrat-controlled House of Representatives. Hartford would also be able to issue debt backed by Connecticut, which would allow it to save money by refinancing at lower rates.
Hartford has $1.3 million and $1.7 million in general-obligation bonds maturing Nov. 15 and Dec. 1, respectively, according to data compiled by Bloomberg. It also has $20.2 million in notes coming due at the end of this month.
Fitterer said the firm has stuck with its investment in Hartford because both Republicans and Democrats have proposed giving aid to the city, though they differed in how much they offered. He said Connecticut officials also likely fear that a bankruptcy would penalize other borrowers in the state if investors demand higher yields to hold their bonds.
Still, Fitterer said he takes Bronin’s bankruptcy threat seriously.
“One of the old sayings is you generally don’t hire bankruptcy counsel unless you’re going to file bankruptcy — it’s not a cheap proposition.”
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