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Rating Action:

Moody's assigns Aa2 to $834.5M Pennsylvania GO Bonds, First Series of 2014; outlook stable

24 Apr 2014

Approximately $11.3B of G.O. debt outstanding

New York, April 24, 2014 --

Moody's Rating

Issue: General Obligation Bonds First Refunding Series of 2014; Rating: Aa2; Sale Amount: $289,500,000; Expected Sale Date: 4/29/2014; Rating Description: General Obligation

Issue: General Obligation Bonds First Series of 2014; Rating: Aa2; Sale Amount: $545,000,000; Expected Sale Date: 4/29/2014; Rating Description: General Obligation

Opinion

Moody's Investors Service has assigned a Aa2 rating to the Commonwealth of Pennsylvania's $834.5 million General Obligation Bonds, consisting of $545 million First Series of 2014 and $289.5 million of First Refunding Series of 2014. Proceeds of the new money portion will finance various commonwealth capital projects and provide funding for the "Pennworks" Act grant and loan program. The refunding bonds will be used to refund currently outstanding general obligation bonds for interest rate savings. The outlook is stable.

SUMMARY RATING RATIONALE

The Aa2 rating reflects Pennsylvania's below average financial position and the continued expectation that large and growing pension liabilities and moderate economic growth will challenge its return to structural budget balance. The rating also reflects a governance structure that allows it to make budget adjustments swiftly when necessary. The stable outlook reflects the expectation that the commonwealth's diverse economy has stabilized but will grow slower than the US on average. Additionally, Pennsylvania's recent history of improved governance, reflected in timely budget adoption and proactive financial management, will support a stable financial position despite the challenge of growing fixed costs.

STRENGTHS

* Diverse, broad, and relatively stable economy, with wealth levels slightly above the national average, buttressed by its large health and higher education sectors

* Recent improvements in governance resulting in three consecutive timely budgets, significantly reduced reliance on non- recurring resources, and a demonstrated willingness to balance revenue shortfalls early in the fiscal year

* Strong executive authority to cut or freeze appropriations mid-year

CHALLENGES

* The commonwealth's financial position and liquidity remains weak relative to its historic position

* High combined debt position driven by growing unfunded pension liabilities, and a history of significantly underfunding pension contributions that will be reversed slowly over the next four years

* Rapidly growing pension contributions will absorb much of the commonwealth's financial flexibility over the next four years challenging its ability to return to structural balance or make meaningful contributions to the depleted budget stabilization fund

* Demographic trends will challenge long-term growth prospects given the history of below-average population growth and above-average age

Outlook

The outlook for the Commonwealth of Pennsylvania is stable, reflecting the expectation that the commonwealth's diverse economy has stabilized but will grow slower than the US on average. Additionally modest revenue growth mitigated by improved governance, reflected in timely budget adoption and proactive financial management, will support a stable financial position despite the challenge of growing fixed costs.

WHAT COULD MAKE THE RATING GO UP

*Higher than expected economic growth that accelerates sustained revenue gains above budgeted projections

*Material reduction in long term liabilities, including unfunded pension liabilities, and their associated budgetary pressure

*Sustained reserve and liquidity replenishment

*Continued good budgetary and financial management and proactive approach to successfully balancing revenue shortfalls

WHAT COULD MAKE THE RATING GO DOWN

*Higher -than- budgeted depletion of fiscal year budget balance in the near term or an inability to restore budget stabilization fund over the medium term

*Inability to restore structural budget balance

*Further economic deterioration that leads to worsening revenue performance

*Growth in long term liabilities, increase in fixed cost pressures, or additional deferral of pension costs

RATING METHODOLOGY

The principal methodology used in this rating was US States Rating Methodology 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.

Kimberly Lyons
Asst Vice President - 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

Nicholas E Samuels
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 Aa2 to $834.5M Pennsylvania GO Bonds, First Series of 2014; outlook stable
No Related Data.
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