OREANDA-NEWS. Fitch Ratings has affirmed its 'BBB+' rating on the following outstanding New Britain, CT (the city) general obligation (GO) bonds:

--\\$28 million in GO taxable pension bonds, series 1998;
--\\$0.9 million GO taxable pension obligation bonds, series 2005;
--\\$28.1 million in GO public improvement bonds, subseries 2010B-2 and 2010B-3;
--\\$9.6 million GO refunding bonds, series 2014A.

The Rating Outlook remains Negative.

SECURITY

The bonds are general obligations of the city backed by its full faith, credit, and unlimited taxing power.

KEY RATING DRIVERS

FINANCIAL CHALLENGES STILL EXIST: The maintenance of the Negative Outlook reflects Fitch's view that the city still faces financial pressure and limited flexibility despite notable progress in reducing its structural deficits. Challenges include addressing growing debt service and employee benefit costs and maintaining an adequate level of reserves.

MODEST RESERVE LEVELS: Projections for fiscal 2015 show growth in reserves to still modest amounts and below policy levels.

HIGH DEBT LEVELS: The city has prudently eliminated its derivative and variable rate debt exposure through a fixed rate bond refunding although its net debt burden, which includes pension obligation bonds (POBs), is high. Principal amortization is above-average.

GROWING CARRYING COSTS: The city-administered pension plans are closed and well-funded, largely due to the issuance of pension bonds. Carrying costs for debt and pensions are a growing budget pressure, given the expected increase in annual debt service costs and pension contributions.

BELOW-AVERAGE ECONOMIC INDICATORS: The city's below-average resource base exacerbates its ability to raise revenue to offset budget imbalances. Income levels are well below average, and the city has a very high poverty rate. Unemployment rates have improved but remain high.

RATING SENSITIVITIES

ADDRESSING INCREASING FIXED COSTS: Management's ability to address growing levels of fixed costs and maintaining sufficient levels of liquidity is paramount to maintaining the current rating.

CREDIT PROFILE

The city of New Britain (population 72,939) is located in the center of Connecticut, eight miles from the state's capitol, Hartford, and a two-hour drive from New York City and Boston.

FINANCIAL PROGRESS MADE BUT CHALLENGES REMAIN
The city has had a history of using one-time revenues to supplement its operations resulting in an accumulation of structural deficits. A combination of expenditure cuts, reductions in staff, a tax increase and negotiated employee concessions have helped bring some stabilization to the city's current operating budget. Fitch remains concerned with projected future budget imbalances and the city's ability to address these challenges. Significant expenditure cuts combined with layoffs and employee concessions were made in fiscal 2014 which helped to offset aggressive revenue assumptions approved by the prior administration. The city ended fiscal 2014 with an unrestricted fund balance of \\$5 million or 2% of spending. This compares to the fiscal 2013 unrestricted fund balance of \\$12.6 million or 5.3% of spending.

These expenditure cuts contributed to the 8.2% reduction in the budget for fiscal 2015. To improve revenues, management approved a 7% increase in the tax levy which was the first above the revenue-neutral rate in over 10 years. The city also included \\$9 million in upfront savings from the 2014 fall refunding; maturities with losses associated with the refunding are deferred to the out years. Projected fiscal 2015 results show an increase in general fund balance of approximately \\$2 million to \\$3 million based on preliminary estimates, equating to an approximate fund balance of 3% of spending. Gains would have been less though if required pension contributions had been made and not \\$1 million below the full annual required contribution (ARC).

FUTURE BUDGET STABILIZATION REMAINS CHALLENGING
The fiscal 2016 budget of \\$250 million contains no tax rate increase and includes annual savings derived from certain healthcare concessions agreed to by major union groups. Increases in departmental spending were curbed and conservative assumptions for non-tax revenues were made. Budget savings were achieved due in part to a number of layoffs that occurred during fiscal 2015.

While the city's finances for fiscal 2016 are balanced, Fitch believes financial stability will remain challenging for the next few years. Debt service costs will rise by \\$7.2 million (2.9% of budget) compared to fiscal 2016 costs and continue at this level through fiscal 2020 as a result of the amortization of the series 2015 taxable pension refunding bonds. In addition to the scheduled rise in debt service, debt service will also rise after \\$34 million in bond anticipation notes (BANs) maturing March 24, 2016 are fixed out. Given how tightly operations are balanced, growth in these costs presents an added challenge to future budget balancing.

HIGH DEBT RATIOS; NO DERIVATIVES EXPOSURE
The city's debt ratios, net of self-supporting debt, are moderate at \\$4,241 per capita but quite high at 8.9% of market value. The city's debt amortization rate is very rapid at 78% of GO principal paid within 10 years. A decision on rolling the maturing BANs or issuing long-term debt will be made upon maturity of the BANs. Plans for other debt are limited, according to management. The city eliminated its exposure to variable rate debt and interest rate swaps via a bond refunding in the spring of this year, although the swap take-out required a \\$15 million termination payment that was funded from bond proceeds.

FUTURE RETIREE COSTS WELL FUNDED
The city-managed police and fire pensions were closed to new employees as of 2000 and 1995, respectively. The city issued \\$106 million in POBs in 1998 to fund its liability for these pension plans. As a result, the pension plan was well funded on a combined basis at an estimated 81% as of July 1, 2014, using Fitch's 7% discount rate assumption.

The unfunded liability was a manageable \\$26.2 million as of July 1, 2014. The city's annual pension contributions to the city administered plan have been lumpy with some year's funding at less than 100%. The city contributed \\$1 million below the ARC in fiscal 2015 and approximately \\$660,000 below the ARC is budgeted for fiscal 2016.

The majority of city employees, excluding teachers, participate in the state-administered Municipal Employees Retirement Fund. The city makes its full required actuarial payment as required by the state. The plan was an estimated 79% funded as of June 30, 2013, using Fitch's 7% rate of return.

The city's unfunded other post-employment benefit (OPEB) liability was a moderate \\$67 million, or 1.9% of market value, as of July 1, 2012. The city contributed a notable 98%, or \\$6.3 million, toward its \\$6.4 million ARC during fiscal 2014. Generally, retirees and their dependents are provided with medical benefits for a period of seven years from the date of their retirement. Carrying costs for debt service, pension and pay-as-you-go OPEB equaled a moderately high 20% of fiscal 2014 total governmental spending. As discussed above, such costs are expected to rise.

BELOW-AVERAGE SOCIOECONOMIC INDICATORS
The city's taxable grand list (assessed value) experienced a notable 16.9% decline to \\$2.45 billion based on its Oct. 1, 2012 five-year revaluation. The taxable grand list increased slightly (0.6%) for Oct. 1, 2014 (for use in fiscal 2016) to \\$2.46 billion resulting in \\$750,000 in new tax revenues.

The city's major employers include the state and the city, as well as the Hospital of Central Connecticut (2,900 employees) and the Hospital for Special Care (1,080 employees). Stanley Black & Decker, a tool manufacturing company, maintains its world headquarters in the city and has 890 employees. A new Costco is under construction and is on track to open in October. The city is also home to Central Connecticut State University, based in the city since 1849, with 12,500 students enrolled.

The city's unemployment rate continues to register above the state and national levels, and was a high 7.7% as of June 2015 compared to 9.4% a year prior as both labor and jobs grew during the period. This compares with the state's 5.7% and nation's 5.5% as of June 2015. The city's wealth levels for 2014 are well below those of the state and nation with a median household income equivalent to 58% and 76% of the state and nation's, respectively. The poverty level reported for 2014 by the U.S. census was a high 22.4%.