diff --git a/NEWS b/NEWS
index d5f1686f..928eedeb 100644
--- a/NEWS
+++ b/NEWS
@@ -17,6 +17,8 @@ What's new in psycopg 2.5.3
   Chris Withers (:ticket:`#193`).
 - Avoid blocking async connections on connect (:ticket:`#194`). Thanks to
   Adam Petrovich for the bug report and diagnosis.
+- Fixed handling of dsn and closed attributes in connection subclasses
+  failing to connect (from :ticket:`#192` discussion).
 - Don't segfault using poorly defined cursor subclasses which forgot to call
   the superclass init (:ticket:`#195`).
 - Fixed debug build on Windows, thanks to James Emerton.
diff --git a/psycopg/connection_int.c b/psycopg/connection_int.c
index c48dc811..aea2841c 100644
--- a/psycopg/connection_int.c
+++ b/psycopg/connection_int.c
@@ -629,14 +629,23 @@ _conn_async_connect(connectionObject *self)
 int
 conn_connect(connectionObject *self, long int async)
 {
-   if (async == 1) {
+    int rv;
+
+    if (async == 1) {
       Dprintf("con_connect: connecting in ASYNC mode");
-      return _conn_async_connect(self);
+      rv = _conn_async_connect(self);
     }
     else {
       Dprintf("con_connect: connecting in SYNC mode");
-      return _conn_sync_connect(self);
+      rv = _conn_sync_connect(self);
     }
+
+    if (rv != 0) {
+        /* connection failed, so let's close ourselves */
+        self->closed = 2;
+    }
+
+    return rv;
 }
 
 
diff --git a/psycopg/connection_type.c b/psycopg/connection_type.c
index b3d4aa63..80ce7fe2 100644
--- a/psycopg/connection_type.c
+++ b/psycopg/connection_type.c
@@ -1099,6 +1099,7 @@ connection_setup(connectionObject *self, const char *dsn, long int async)
         res = 0;
     }
 
+exit:
     /* here we obfuscate the password even if there was a connection error */
     pos = strstr(self->dsn, "password");
     if (pos != NULL) {
@@ -1106,7 +1107,6 @@ connection_setup(connectionObject *self, const char *dsn, long int async)
             *pos = 'x';
     }
 
-exit:
     return res;
 }
 
diff --git a/tests/test_connection.py b/tests/test_connection.py
index 26ad9329..b2c51977 100755
--- a/tests/test_connection.py
+++ b/tests/test_connection.py
@@ -249,6 +249,18 @@ class ConnectionTests(ConnectingTestCase):
         cur.execute("select 1 as a")
         self.assertRaises(TypeError, (lambda r: r['a']), cur.fetchone())
 
+    def test_failed_init_status(self):
+        class SubConnection(psycopg2.extensions.connection):
+            def __init__(self, dsn):
+                try:
+                    super(SubConnection, self).__init__(dsn)
+                except Exception:
+                    pass
+
+        c = SubConnection("dbname=thereisnosuchdatabasemate password=foobar")
+        self.assert_(c.closed, "connection failed so it must be closed")
+        self.assert_('foobar' not in c.dsn, "password was not obscured")
+        pass
 
 class IsolationLevelsTestCase(ConnectingTestCase):