Sept 13 (Reuters) - Confirmation of Central Falls' bankruptcy plan has a positive effect on other Rhode Island cities because it establishes a way out of bankruptcy that spares general obligation bondholders, Moody's Investors Service said on Thursday.
The city won court approval on Sept. 6 for its Chapter 9 municipal bankruptcy plan, which hikes taxes, cuts employees and pensions, and reworks labor contracts while leaving bondholders whole.
Moody's said that the plan and strong state intervention are not just a credit positive for Central Falls, but also for surrounding towns and cities, several of which are facing financial distress.
"It is credit positive for other distressed Rhode Island cities because it shows a path to emerging from bankruptcy without defaulting on G.O. debt," Moody's said in a commentary.
The city, which is just 1.2 square miles large and has a population of about 19,400, filed for bankruptcy in August 2011.
It had suffered deep cuts in state aid and revenue shortfalls and it had an unfunded liability of about $80 million for pension and retiree health benefits.
Moody's currently rates the city Caa1 but it is on review for an upgrade.