Moody's Investors Service yesterday said Philadelphia is in no immediate danger of defaulting on its bonds, but warned that many steps need to be taken before bondholers will see "meaningful enhancement" to long-term security.
In a credit comment prompted by recent developments in the city, including the creation of a new oversight authority, Moody's said city officials have presented a "reasonable plan" to assure debt service over the next two months. Philadelphia is rated B by Moody's.
"Beyond the next two months, the city is dependent upon deficit financing and structural budgetary adjustments in order to allow them to begin to regain control over the city's fiscal position," Moody's said.
Deficit financing and budget flexibility will be heavily dependent on the new Pennsylvania Intergovernmental Cooperation Authority, which the state Legislature approved earlier this month. The city is counting on bond proceeds from the authority to help eliminate the $219 million fiscal 1991 deficit and a $42 million hole in next year's budget.
But Moody's noted that few details are available yet regarding the structure, security, and terms of the new authority's bonds. The details are expected to be released as the city negotiates the upcoming bond sales with the authority.
"Until these specifics are finalized, it is premature to develop any conclusions as to the relative strengths and weaknesses of PICA's prospective financings," Moody's said.
Standard & Poor's Corp. placed Philadelphia's CCC rating on CreditWatch with positive implications on June 7, saying the prospect of a cash infusion from the oversight authority had brought the city "back from the brink."
Fitch Investors Service rates Philadelphia B.