Philadelphia returned to the credit markets with a vengeance on Friday, pricing $100 million of notes in a deal that left investors begging for more.

The oversubscribed issue marked a dramatic turnabout for the junk-rated city, which in the midst of its ongoing fiscal crisis once paid an all-in cost of 25% for a note deal.

With memories of those days now fading, bankers running the books on Friday's deal had $125 million of orders just two minutes into the pricing, according to officials involved with the sale.

The reception was largely attributed to backing from Canadian Imperial Bank of Commerce. which issued a confirming letter of credit to support direct-pay letters from five local banks.

The notes, originally priced to yield 3.10%, were eventually over-subscribed by a factor of five. That allowed for a repricing that brought the yield down to 2.98%.

"We had orders from people who haven't bought Philadelphia paper in years." said F. John White. co-chief executive officer at Public Financial Management, the city's financial adviser. "We're delighted. It's a nice vote of confidence for the city."

But not everyone is convinced yet.

A few major Pennsylvania fund managers said they did not participate in the deal, despite the letter of credit from top-rated Canadian Imperial, because Philadelphia's credit is still too shaky.

The city is rated single-B by both Moody's Investors Service and Standard & Poor's Corp., and BB by Fitch Investors Service.

"We care a lot about liquidity in the six-month market," said Sarah Zenoble, a portfolio manager at Fidelity Investments. She said Fidelity was "not negative" about the issue, but "we didn't participate because we are waiting to see further improvement in the underlying credit. "

A portfolio manager at another Pennsylvania fund, who asked not to be identified, said his credit standards required him to evaluate both the letter of credit provider and the city. Philadelphia flunked.

Still, the general reception was excellent, according to market sources.

The letter of credit was the most important factor in convincing investors to look again at Philadelphia paper, according to Gregory R. Friedman, a manager at Mellon Bank, which was senior manager for the deal. Based largely on the letter, the notes were rated F1-plus by Fitch, MIG-1 by Moody's, and SP1-plus by Standard & Poor's.

Market sources, some of whom first thought the low yield was a mistake, agreed the letter was vital in getting such a good reception.

"Philly is not looked upon as a good credit, and the fact they got such a low yield just shows you how much pull letters of credit have," one note trader said. "Without the LOC they probably couldn't have even brought the deal [to market]."

Friedman said an improved note market yesterday also helped, with virtually no other short-term paper on the Street competing with the issue. He also pointed to the city's recent progress in implementing a five-year recovery plan and in obtaining significant wage and benefit concessions from local unions.

As noted in the official statement for the notes, the administration is expected today to file a quarterly report with the city's oversight board detailing its adherence to the five-year plan. The report will show a gap of between $55 million and $60 million for this fiscal year and a $150 million variance from the long-term goals of the five-year plan.

But White said those figures are based on estimates that assume no steps are taken to fix the problem. "We expect sufficient corrective action to make both those [shortfalls] go away," he said.

White noted that even though investors were fully informed of the projected deficits, market reaction was still very positive.

He said participation by local banks, which have been extremely reluctant to help the city with its financing needs in recent years, "shows the people most familiar with what's going on are expressing confidence in the administration" of Mayor Edward G. Rendell.

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