Philadelphia Sets Record Sale as A Rated Debt Trails: Muni Deals
Philadelphia is selling $363.8 million in general-obligation debt this week, its biggest issue on record, as similarly rated securities trail top-rated bonds.
The sale scheduled for tomorrow includes $197.4 million in new borrowing to finance hundreds of capital projects in the city of 1.55 million residents, from repairing bridges to upgrading information-technology systems, said James Lanham, deputy treasurer. It’s the biggest fixed-rate, long-term issue for Pennsylvania’s largest municipality since at least 1990, when Bloomberg data began.
Philadelphia will also replace coupons higher than 7 percent with lower-cost bonds, he said. Securities targeted for possible refunding have maturities in 2014, 2023, 2028 and 2038, according to deal documents. He declined to provide savings estimates.
The deal is the first from the city after Standard & Poor’s last month raised its grade one step to A-, seventh-highest, matching the score from Fitch Ratings. S&P said officials have “taken action to rebalance operations during a difficult recession” and generated three years of surpluses.
Moody’s Investors Service ranks Philadelphia, which has the lowest credit grade of the nation’s five most populous cities, one step higher at A2.
“We’re really excited to go into the market with our new rating,” Lanham said. “We’d like to set a strong tone.”
Philadelphia has $8.39 billion in outstanding debt, including general obligations, according to deal documents. During the fiscal year that began this month, the city plans to sell about $50 million in debt backed by sales taxes and give the proceeds to the school district, which faces a $304 million deficit, the filing said. Lanham said the offering is subject to City Council approval.
In the broader market, top-rated securities are beating A rated debt for the first time since 2010, losing 2.4 percent so far this year, compared with a loss of 2.82 percent for the lower-rated debt, according to Bank of America Merrill Lynch indexes.
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