Standard & Poor's Corp. yesterday <
rescued Philadelphia from the lower depths of its credit scale, hoisting its general obligation bond rating to B from CCC.
The agency said the main reason <
it acted is the bond market debut planned for next week by the Pennsylvania Intergovernmental Cooperation Authority, an oversight body created to help shore up the city's finances.
"The upgrade primarily reflects <
the improvement in Philadelphia's cash position as a result of the funding of the city's $153 million 1991 deficit from the proceeds of the pending sale of $473.8 million PICA special tax bonds," the agency said in a release.
The Philadelphia upgrade affects <
$1.3 billion of the city's GO bonds. As part of its assessment of the city's GOs, Standard & Poor's has assigned an A-minus to the first PICA sale.
The oversight commission agreed <
in February to help address Philadelphia's financial problems by selling special bonds.
Proceeds will also help address a <
$94.9 million deficit projected for fiscal 1992, and a $7.8 million deficit estimated for fiscal 1993, which begins June 30, the authority's preliminary official statement says.
The upgrade marks the third rating <
action for Philadelphia in the last 10 days. Last Wednesday, Fitch Investors Service gave the city its first upgrade in 17 years by raising its assessment of the city's GOs to BB from B. Fitch rated the authority's deal BBB-plus.
Then, this Tuesday, Moody's Investors <
Service confirmed its B classification of Philadelphia GOs, while assigning the oversight authority's issue a Baa.
Richard P. Larkin, a managing <
director at Standard & Poor's, said that with the upgrade, the rating agency is acknowledging that Philadelphia's ability to make good on its obligation to bondholders is not at risk on a "month-to-month" basis. The CCC rating is one notch above the D classification, which is reserved for municipalities that default on their debt payments.
Although substantial credit risks <
remain, Mr. Larkin said the city's financial outlook is considerably stronger, given Mayor Edward G. Rendell's five-year plan to balance the city's budget and the existence of PICA.
Philadelphia ran a series of general <
fund deficits between 1988 and 1991, which led to downgrades in its bond rating and limited access to the credit markets.
"The city's cash crisis is greatly <
relieved," Mr. Larkin said. "The financial plan is very aggressive. Any future credit improvement will be based on the city's ability to implement the plan."
The oversight authority's chairman, <
Bernard Anderson, said investors can take comfort from the fiscal discipline the authority will require of the city. The goal is to return Philadelphia to the capital markets on its own strength "as soon as practicable," Mr. Anderson said.
As proof of the "new spirit of cooperation" <
that many say was missing during the previous administration, city officials cite the city council's speedy approval of the plan in March, as well as unanimous support for the fiscal 1993 budget three weeks later.
But while city council, the Rendell <
administration, and PICA officials support the recovery plan, Philadelphia's unions remain a loud and dissonant voice.
The five-year plan details more <
than $1 billion of productivity improvements and labor concessions from city workers, including sizable cuts in paid holidays and sick time and an overhaul of longstanding health-care benefits.
Union leaders have said the plan <
places too much of the budget-balancing onus on municipal employees, and have threatened to strike if a settlement cannot be reached.
The city's main advantage in the <
negotiations for new municipal contracts, which expire June 30, is the public's general lack of support for the unions, Mayor Rendell said recently.
"There is not going to be support <
for the union position," he said, adding that the public wants city workers to "take the hit" when budget cuts are made.
Although he has previously said a <
strike is likely, Mr. Rendell said Monday he sees a "good chance" of settlement.
But Moody's did not raise the <
city's GO rating earlier this week largely because it was concerned Mr. Rendell would not be able to convince the unions to make these concessions, said Michael L. Johnston, a vice president and manager at the rating agency.
In fact, one threat unions have <
made to the upcoming bond deal is a legal challenge to the oversight authority's right to exist. The state Supreme Court dismissed the case last month, but a request for a reconsideration of the ruling is pending.
Mr. Larkin said Standard & <
Poor's delayed its rating of the oversight authority almost two days in an effort to determine if this legal challenge could undermine the authority and its ability to meet its financial obligations.
Mr. Larkin said the agency wanted <
to "feel comfortable" about the legality of PICA following a recent New York State Supreme Court ruling that declared the state's last deficit note issue unconstitutional. The state is appealing the ruling.
Ronald G. Henry, the oversight <
board's executive director, said legal counsel has determined that the pending motion is "of no merit," and that even with a rehearing the court would again decide in favor of the authority. The opinion, by the law firm of Obermeyer, Rebmann, Maxwell & Hippel of Philadelphia, is expected to be released over the Munifacts newswire on Monday, Mr. Henry said.
With all three rating agencies accounted <
for, the remaining question from a credit perspective is whether the deal will carry insurance. Several insurers are expected to make bids, according to market sources.
Anticipating a pricing next Tuesday, <
Philadelphia leaders on Monday kicked off a week-long campaign to tell institutional investors "the new Philadelphia story."
"There is without any question a <
new feeling in the air about the city of Philadelphia," Mr. Rendell told a group of underwriters and bond buyers at the Ritz Carlton, a downtown hotel. The optimism is being fueled by unprecedented cooperation among different layers of city government and by the city's success in laying the groundwork for next week's bond sale, Mr. Rendell said.