More Business News:
Philadelphia School District, PA's TRANs Rated 'SP-1'
NEW YORK (Standard & Poor's) July 1, 2009--Standard & Poor's Ratings Services has assigned its 'SP-1' short-term r ating to Philadelphia School District, Pa.'s $400 million tax revenue anticipation notes (TRANs) series 2009-2010.
The rating reflects Standard & Poor's view of:
• The district's GO pledge and adequate projected debt service coverage by net general fund cash balances (after disbursements are made) during segregation periods and at maturity; and
• The diversion of state aid (Local Government Unit Debt Act, Act No. 185, section 8125 (b)) and property taxes to the fiscal agent (Bank of NY Mellon) in the event of a debt service deficiency.
Despite these strengths, the short-term rating is constrained by Standard & Poor's view of the district's very thin financial operations, which, by home rul e charter, do not allow it to maintain any fund balance at year-end.
The district is required to make three equal debt service set-aside payments, each estimated at $133.3 million, to a sinking fund held by the fiscal agent. Projected coverage of debt service by net general fund cash balances on the segregation dates is: 3.26x on April 1, 2010, and 2.17x on May 3, 2010. Coverage at the third set-aside date is insufficient, at 0.24x based on the beginning cash balance on June 1, 2010; however, when revenues, including $265 million of state aid receipts the district projects receiving that day are included, debt service coverage is 1.4x. Coverage at the third set-aside payment date is contingent on timely receipt of those funds. Pursuant to the note indenture and statute, the fiscal agent is required to immediately demand that state and local officials pay directly to it all pledged revenues in their possession if a deficiency exists in any one of the three sinking fund payments. As such, in the event that the district fails to make a regularly scheduled sinking fund payment, the state aid intercept mechanism would be triggered. The district projects receipts of $523 million from the commonwealth of Pennsylvania and $162 million in local revenue from April to June 2010, which would be available to the fiscal ag ent. The district projects receiving $93 million of state subsidies and $66 million in local revenue between the final set-aside date and the note maturity that would be available to make up any shortfalls on the third set-aside date. The district also projects that coverage at maturity is to be 1.33x at June 30, 2010.
The fiscal 2010 TRANs represent 16% of budgeted revenue. By law, the district may issue TRANs up to 85% of anticipated revenue.
Underlying rating factors include Standard & Poor's view of the district's thin budgetary and financial position, a moderate debt burden, and ongoing capital needs. The district entered distressed status in Dec. 21, 2001, which resulted in the abolition of the board of education and its replacement with a school reform commission appointed by both the mayor and governor, which provides it with greater leverage in negotiating with unions, prevents teachers from going on strike, and limits local revenue from falling below the date of takeover levels.
RELATED RESEARCH
USPF Criteria: "Short-Term Debt," June 15, 2007
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.