Newburgh, N.Y., rating falls to Ba; Moody's cites budget woes, deficit bonds.

Moody's Investors Service on Friday lowered its rating on Newburgh, N.Y.'s general obligation bonds to Ba, a below-investment grade rating, from Bal.

In lowering the rating, Moody's cited a planned deficit bond sale this week and troubled finances.

About $3.9 million of oustanding unenhanced GO debt is affected.

An additional $3.6 million of outstanding GO debt is Aaa-rated and enhanced by three bond insurers: Municipal Bond Investors Assurance Corp., Financial Guaranty Insurance Co., and AMBAC Indemnity Corp., according to Moody's.

The city's "poor financial performance, exacerbated by the recession, and poor socio-economic conditions" all contributed to the downgrade, said Dennis E. Porcaro Jr., a Moody's assistant vice president.

The action hits the city as it prepares to sell a $6.24 million issue. The deal includes $.2.64 million of deficit bonds, with a 10-year maximum maturity, that will replace bond anticipation notes. The rest of the offering is being sold as general purpose improvement GOs, with a maximum maturity in 20 years, that will replace outstanding BANs.

The city received permission from the state to sell the deficit bonds to shore up a troubled budget.

Moody's noted in a statement that "poor financial performance has led the city to issue deficit bonds for the second time since 1987."

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