NIFA takeover may help Nassau's credit rating

As embarrassing as it may be for Nassau County to have its finances taken over by a state oversight board, experts said it could make it easier for the county to borrow if bond traders now believe they can trust the county's budget numbers.

"It could be a credit positive," said Normand Benoit, a partner at Partridge Snow & Hahn, a Providence, R.I., business law firm that often serves as bond counsel to local governments in that state. If the market perceives the new managers as more responsible, it could help, he said.

Benoit cited the ongoing saga of Central Falls, a small Rhode Island city. A state-appointed receiver reported the city had been courting trouble for more than 10 years. It awarded employee contracts and pension benefits it couldn't afford. Its bond rating was reduced to C- junk bond status.

Last year, the city tried to declare bankruptcy, but the state passed a law appointing the receiver instead.

Benoit said that step has eased Central Falls' credit problems, as the receiver has taken steps that the city government either couldn't or wouldn't take.

"The situation's now been stabilized with the new management in place," he said.

The same scenario could unfold in Nassau, he suggested.

Several bond traders on Long Island and in New York City declined to discuss Nassau's situation publicly, noting that they either trade now or could trade in Nassau bonds.

Still, they noted the county's financial instability led Moody's Investor Service to cut the county's credit rating in November from Aa3 to A1 and warned that further downgrades could come. A lower credit rating makes it more expensive to borrow money.

Traders said if bond raters restore Nassau's former rating, that would be a sign they trust the steps taken by the Nassau Interim Finance Authority.