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Related Issuers
Rating Action:

Moody's downgrades the City of Allentown's (PA) General Obligation rating to A3 from A2; maintains negative outlook

Global Credit Research - 11 Oct 2012

Downgrade affects $120.3 million of outstanding parity debt

New York, October 11, 2012 -- Moody's Investors Service has downgraded the City of Allentown's (PA) General Obligation rating to A3 from A2. The outlook remains negative. The downgrade affects approximately $120.3 million of outstanding parity debt.

SUMMARY RATINGS RATIONALE

The A3 rating reflects the city's financial deterioration due to four consecutive operating deficits which have largely been driven by aggressive budgeting of city revenues and reserve appropriations to balance the budget. The rating also incorporates a sizeable and mature urban tax base with below-average socioeconomic indices and a slightly above average, but manageable, debt burden with below average payout of principal.

The negative outlook reflects continued challenges to the city's financial position given narrow operating flexibility resulting from a history of structurally imbalanced operations. Over the near-term, Moody's will monitor the city's ability to stabilize its financial operations and to begin to replenish its narrowed reserves.

STRENGTHS

- Large tax base with a stabilizing healthcare presence

- Recently improved budgeting assumptions

CHALLENGES

- Weak socioeconomic profile

- Currently limited financial flexibility

Outlook

The negative outlook reflects our belief that the city's financial position will continue to be challenged due to narrow financial flexibility given the history of structurally imbalanced operations. Moody's will continue to monitor the city's ability to stabilize the currently narrow financial position and to begin to replenish its reserves.

WHAT COULD CHANGE THE RATING - UP (or removal of negative outlook)

- Tax base growth due to NIZ

- Trend of increasing GAAP basis fund balance as a percent of revenues

WHAT COULD CHANGE THE RATING - DOWN

- Further deterioration of fund balance

- Tax base deterioration resulting in negative operational impact

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Dan Seymour
Associate Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

GEORDIE THOMPSON
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades the City of Allentown's (PA) General Obligation rating to A3 from A2; maintains negative outlook
No Related Data.

 

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