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Rating Action:

Moody's assigns A2 to Philadelphia's (PA) $358 million GO Bonds, Ser. 2013; outlook stable

Global Credit Research - 12 Jun 2013

City has $3.9 billion of rated GO debt including current offering

New York, June 12, 2013 --

Moody's Rating

Issue: General Obligation Bonds, Series 2013A; Rating: A2; Sale Amount: $200,000,000; Expected Sale Date: 6-26-2013; Rating Description: General Obligation

Issue: General Obligation Refunding Bonds, Series 2013B; Rating: A2; Sale Amount: $158,000,000; Expected Sale Date: 6-26-2013; Rating Description: General Obligation

Opinion

Moody's Investors Service has assigned an A2 rating to the City of Philadelphia's (PA) $358 million General Obligation Bonds, Series 2013, consisting of the $200 million General Obligation Bonds Series 2013A and the $158 million General Obligation Refunding Bonds, Series 2013B. Concurrently, we have affirmed the A2 rating and stable outlook assigned to the city's $3.7 billion of previously-issued general obligation (G.O.) bonds and unconditional General Fund obligations. The current issue is secured by the city's general obligation tax pledge. Proceeds of the Series 2013A bonds will fund capital improvements to the city, while proceeds of the Series 2013B bonds will refund prior series of bonds for an estimated net present value savings of approximately $24.7 million, or 16.9% of refunded par.

SUMMARY RATING RATIONALE

The A2 rating reflects ongoing improvement in the city's financial operations, which stabilized in fiscal 2011 and continued to strengthen modestly in fiscal 2012, although the city continues to face long-term financial challenges. The A2 rating also reflects our expectation that financial flexibility will remain relatively constrained over the course of the city's current five-year plan, due to rising pension and contractual salary costs coupled with limited revenue-raising ability. The rating also incorporates Philadelphia's sizeable economy and tax base, weak demographics and above-average unemployment levels, modest property value growth, and a heavy burden of tax-supported debt and unfunded pension liabilities.

The stable outlook reflects our view that financial operations, reserves and cash will be maintained at currently narrow levels over the near-term, with the potential for modest augmentation going forward, as well as our expectation that the current management team will continue to seize opportunities to streamline operations and improve pension funding. The rating and outlook also reflect the existence of a state oversight board, which mitigates the city's weak credit characteristics through well-established five-year planning and quarterly monitoring procedures.

STRENGTHS

-Large, diverse tax base; economic center for a multistate region

-Improved financial operations and reserve balance

-Strong state oversight and comprehensive five-year financial planning

CHALLENGES

-Constrained financial flexibility given very narrow reserve levels

-Slow tax base growth coupled with weak demographics

-Very high debt burden and fixed cost pressure

-Significant unfunded pension liabilities

Outlook

Moody's stable outlook for Philadelphia's general obligation rating reflects the city's improved financial stability, albeit at narrow reserve levels, the likelihood of continued narrow fund balance levels over the medium term, and additional stability provided by a state-appointed oversight board, including enhanced budgetary disciple and five-year forecasting.

WHAT COULD MAKE THE RATING GO UP

- Continued improvement to financial operations and an increase in General Fund balance well above the current levels

- Ability to navigate significant additional pension contributions and reduce unfunded pension liability

WHAT COULD MAKE THE RATING GO DOWN

- A return to deficit General Fund operations

- Stagnant or further weakened reserve levels

RATING METHODOLOGY

The principal methodology used in this rating was General Obligation Bonds Issued by US Local Governments published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Michael D'Arcy
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
VP - Senior Credit Officer
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 assigns A2 to Philadelphia's (PA) $358 million GO Bonds, Ser. 2013; outlook stable
No Related Data.

 

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