MANCHESTER – The city likely won't have the money to cover the bill for the Verizon Wireless Arena in years to come because the state is withholding some much-needed dollars, financial analysts say.

The analysts at Moody's Investors Service have responded to the apparent shakiness of the arena's financing by downgrading the bonds that made it possible to build the 11,000-seat arena. The bonds are now considered "non-investment grade" -- also known as junk.

Mayor Frank Guinta has described the downgrade as a cause for concern. A failure to pay off the debt on the stadium would, at some point, lead to a default, an event that could have unwanted consequences for both the city and, according to Guinta, the state.

Guinta warned Gov. John Lynch about some of those consequences in a letter last Friday, suggesting the situation could hurt the state's credit rating. In addition, he wrote, bondholders could sue the state for not dealing with them "in good faith" this spring when it froze Manchester's share of rooms-and-meals tax dollars, which the city uses to pay for the arena.

Mike Brunelle, executive director of the state Democratic Party, said Guinta, a Republican candidate for Congress, is "just trying to stir the pot to try and score some cheap political points."

"He can't blame the Legislature for this," Brunelle said. "During an economic recession, he knew rooms-and-meals was going to be level-funded, and he failed to plan for it."

The city itself is not on the hook for the projected shortfalls on the arena's bond payments, nor is the Manchester Housing and Redevelopment Authority, which issued the bonds in 2000.

"The city is well-protected," said Ken Edwards, assistant executive director of the MHRA. "The original deal assured that the housing authority and the city would not be liable."

However, a default would create some uncertainty for the arena. City officials have warned before that a default could put the arena at the mercy of the bondholders' trustee, Bank of New York Mellon, which could opt to sell the building or put it under new management.

Joe Ailinger, a spokesman for Bank of New York Mellon, said he could not comment on the situation yesterday. "It would be a matter of client confidentiality," he said.

Moody's announced last week it downgraded the arena bonds from Baa3, a rating that already suggested some riskiness, to a less healthy Ba2. The agency said it was concerned the state's decision to cap the amount of rooms-and-meals tax money it shared with cities and towns would lead to a $66,000 shortfall on the arena bonds next July, to be followed by additional shortfalls over the life of the 30-year bonds.

There are still $43.1 million in bonds outstanding, out of an initial $50 million.

The city's decision to build the arena rested on expectations that the state would continue sending rooms-and-meals tax money to Manchester. Traditionally, the city has used its share of the rooms-and-meals money to pay off the bonds and kept about $455,000 for itself.

City officials sounded the alarm last spring when Lynch called on the Legislature to withhold all of the rooms-and-meals tax money. Ultimately, the Legislature raised the tax from 8 percent to 9 percent and froze each community's share at last year's levels.

Manchester's share is slightly more than $4.8 million. Moody's warns that won't be enough to cover the $4.4 million in bond payments due this fiscal year, assuming the city holds onto $455,000, as it always has.

Colin Manning, a spokesman for the governor, said the freeze had no impact on Manchester this year because rooms-and-meals tax revenues were down.

What that means, he said, is that under state law, "There wouldn't have been an increase in meals-and-rooms distribution this year, regardless."

Manning suggested the city could cover the shortfall if it gave up some of the $455,000 it was planning to retain. Guinta was unavailable for comment.

The bondholders are protected by an insurance policy. Officials have previously speculated that the policy might be worthless because the insurer, ACA Financial Guaranty Corp., saw its own ratings slip after getting caught up in the sub-prime mortgage crisis.

The company's rating has since been upgraded, and Edwards said he believes the policy is good.

Clarification: The story reported that Manchester officials have previously warned the Verizon Wireless Arena could be sold or put under new management if there is a default on the bonds that paid for its construction. The city’s bond counsel, however, has since said there is no such risk. A Nov. 10 letter from the firm, Hawkins, Delafield & Wood, states that neither the bondholders nor the insurer would receive a mortgage, security interest or title to the arena in the event of a default.