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RPT-Fitch rates Philadelphia School District's bank bonds 'AA-', underlying 'BB'; outlook negative
October 30, 2013 / 8:12 PM / 4 years ago

RPT-Fitch rates Philadelphia School District's bank bonds 'AA-', underlying 'BB'; outlook negative

NEW YORK, October 30 (Fitch) Fitch Ratings affirms the underlying 'BB' rating to
bank bonds corresponding to the following Philadelphia School District, PA (the 
district) variable rate general obligation (GO) bonds:

--$75 million GO refunding bonds, series G of 2010.

Additionally, Fitch Ratings assigns an underlying 'BB' rating to the following 
district variable rate GO bonds:

--$75 million GO refunding bonds, series H of 2010. 

All of the bonds have an 'AA-' enhanced rating based on the Pennsylvania School 
District State Intercept Program (the program).

The Rating Outlook for the state's program is Negative, reflecting the Negative 
Outlook on the Commonwealth of Pennsylvania's GO bonds. The Rating Outlook for 
the underlying district rating is also Negative. 

The ratings are being assigned in connection with the execution of reimbursement
agreements by PNC Bank, National Association (PNC) for series G of 2010 and by 
Royal Bank of Canada (RBC) for series H of 2010 pursuant to which PNC and RBC 
will issue letters of credit supporting the above-referenced bonds. The series H
of 2010 bank bonds were previously part of series G of 2010 and are being split 
out with the current letter of credit issuances.

KEY RATING DRIVERS

WEAKENING UNDERLYING CREDIT PROFILE: The downgrade of the underlying rating 
largely reflects the continued deterioration of the district's already tenuous 
financial position.

UNCERTAIN PROJECTIONS: The district's plans to achieve structural balance rely 
heavily on its continued ability to achieve dramatic expenditures savings, 
particularly gaining significant negotiated concessions from the teacher's 
union. Fitch believes the level of cooperation needed to fully realize these 
plans will likely not be forthcoming, resulting in continued negative operations
and increased accumulated deficits.

LIMITED ABILITY TO RAISE REVENUE: Fifty-seven percent of the district's funding 
is tied to state sources, and raising locally generated revenue requires state 
and city council approval.

ELEVATED DEBT LEVELS: The district's overall debt burden is high relative to the
tax base, although annual debt service expenditures consume a moderate share of 
the district's operating budget. Payments for other long-term liabilities are 
modest but growing.

STABLE SERVICE AREA: Demographic and economic indicators are weak, although the 
city's economy is anchored by the presence of several large healthcare and 
higher education institutions.

SOUND INTERCEPT PROGRAM: The enhanced, programmatic 'AA-' rating is based on 
state law governing the program, which requires the withholding of state 
appropriations and their direct payment to bondholders or their paying agents.

SOLID COVERAGE:U.S. Local Government Tax-Supported Rating CriteriaAdditional Disclosure 

Solicitation StatusALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
here. IN ADDITION, RATING 
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND 
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF 
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE 
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF 
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS 
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED 
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH 
WEBSITE.

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