Slow Jobs Recovery to Impact Some State Credit Ratings

Hawaii recently saw a Fitch downgrade to AA, thanks to continued employment losses in the leisure sector.


States contending with steep job losses from the pandemic are finding their credit ratings endangered by slower economic recoveries, says Fitch Ratings. 

Median jobs recovery in the US increased to 55% in September, up from 51% in August, according to Fitch commentary on Monday. The ratings agency says it expects most states are financially prepared to head into the final months of the year, when the numbers of COVID-19 cases and related hospitalizations are expected to increase. 

“States by and large saw continued improvement in jobs recovery in September,” Fitch Senior Director Olu Sonola said in a statement. “Although the pace has slowed since the summer, we expect the economic recovery to continue slowing this quarter.” 

But any sharp economic drawdowns from the pandemic could continue to hurt several state governments. Some states that are experiencing slower economic recoveries in recent months include Alaska, Illinois, Kentucky, Nevada, New Jersey, and New York. 

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Hawaii topped a list of nine states that lost jobs in September, resulting in the state’s downgrade to an AA rating. The islands’ tourist economy has been hard hit by the coronavirus’s impact on the leisure and hospitality sector.  

State governments, of course, seek to improve their credit ratings so they can lower the cost of repaying bonds that are sold to investors to fund infrastructure projects, such as roads, schools, and airports. Investors use ratings to determine whether states can meet their financial obligations.

A number of hard-hit states are showing signs of progress. For instance, Massachusetts in September saw hiring jump in the education and health services sectors, which helped improve the state’s overall jobs picture. Massachusetts’ official unemployment rate improved to 9.6% in September, down from 11.4% in August. 

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Rhode Island Pension Sues Restaurant Brands over Offerings

Lawsuit alleges the fast-food company misled investors about the underperformance of its Tim Hortons chain.


Rhode Island’s Warwick Municipal Employees Pension Fund has filed a class action securities lawsuit against fast-food chain owner Restaurant Brands International for allegedly misleading investors about the performance of its Tim Hortons restaurants in a shelf registration statement related to two public stock offerings.

The lawsuit centers on Restaurant Brands’ August 2019 secondary public offering of 24 million shares of the company’s stock at $73.50 each, and a September 2019 offering of just under 16.7 million shares at $75.10 each.

According to the lawsuit, Restaurant Brands launched a growth strategy for Tim Hortons at the time of the offerings that included new product offerings and a loyalty program that aimed to increase customer traffic and boost sales. The lawsuit notes that Tim Hortons is the largest restaurant chain in Canada and said it is Restaurant Brands’ primary revenue generator.

The suit claims that at the time of the offerings, the discounting associated with the loyalty program was “not being offset by customer traffic and purchases, exacerbated by failed product offerings, and was negatively affecting the company’s sales and its ability to compete effectively.”

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The complaint also says that the company acknowledged after the offerings that the discounting through the loyalty program had a negative impact on sales. It claims that as a result of the “undisclosed adverse facts,” Restaurant Brands’ stock “plummeted” this year from its offering prices of $73.50 and $75.10 to close 26% lower at $55.41 per share on Oct. 26.

“The shelf registration statement falsely represented Restaurant Brands’ growth potential, misleadingly touted the success of the Tims Rewards program, and failed to disclose that frequent data metrics showed the failure of the Tims Rewards program in driving sustainable growth,” according to the complaint. “In reality, at the time of the offerings, the loyalty program was dragging sales and generated an unsustainable level of discounting that outweighed customer traffic.”

The lawsuit also names 15 individual defendants, including CEO José Cil, Chief Financial Officer (CFO) Matthew Dunnigan, and several members of the company’s board of directors, as well as the company’s controlling stockholders, 3G Capital Partners and 3G Restaurant Brands Holdings. The complaint says 3G Capital Partners and 3G Restaurant Brands “offloaded almost 10% of [their] holdings in Restaurant Brands stock.”

The complaint said that in late October 2019, Restaurant Brands “shocked investors” when it reported that quarterly revenue missed analysts’ expectations. It said the company noted that Tim Hortons’ results “were not where [they] want them to be” and attributed weaker-than-expected revenue to an offset of sales due to discounting and traffic in the Tim Hortons loyalty program.

“On this news, Restaurant Brands share price fell from $68.45 to $64.86 per share over the following two days of trading, a drop of over 5%,” said the complaint. “Since the offerings, the value of Restaurant Brands’ shares has collapsed from its prices of $73.50 and $75.10.”

In response to the lawsuit, Restaurant Brands said in its most recent quarterly report that the company “is currently evaluating the lawsuit, but believes that the claims are without merit and intends to vigorously defend” itself.

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