S&P Upgrades $391M of Phoenix Refunding Bonds to AA-Plus

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DALLAS — Phoenix Civic Improvement Corp. will issue $391 million of refunding bonds with the benefit of a one-notch upgrade to AA-plus by Standard & Poor's.

The taxable and tax-exempt subordinated bonds are expected to come to market April 21.

"The raised ratings reflect our view of the continued pledged revenue growth in recent years," said Standard & Poor's credit analyst Matthew Reining. "We believe that the economic recovery has matured in Phoenix, the center of the statewide recovery, and includes tax base growth. These increases have covered the major components of pledged revenues, including local sales, state-shared sales, and income taxes."

S&P also affirmed its AAA rating on the city's senior-lien debt.

The subordinated bonds carry ratings of Aa3 from Moody's Investors Service. Moody's rates the senior-lien bonds Aa2.

Outlooks from both agencies are stable.

According to Moody's Economy.com, the Phoenix area recovery has rebounded from a midyear lull to overtake the rest of the state. Above-average population growth is expected to return the Phoenix area soon, bringing a positive impact on residential construction and the public sector.

Slow construction activity and subdued hiring in the local government sector have weighed down Phoenix's recent recovery, analysts said. Over the long-term, Moody's Economy.com expects growth at both ends of the income spectrum will soon push the area from recovery to expansion.

The bonds for the current sale are secured by a subordinate lien pledge of excise taxes, which include a very broad mix of sources including the city's sales taxes, state-shared revenues, franchise taxes, permit fees, and fines and forfeitures.

The city's sales tax is a mix of varying tax rates that are assigned by category to various business activities within the city. State-shared revenues are comprised of a portion of the state's sales and income taxes that are distributed to the city based on a population formula set by state law.

Franchise taxes are based on the gross receipts of utility franchises, while permit fees are primarily generated by construction permits, and fines and forfeitures are collected by the city for violations of state law or city ordinances.

"We believe that the legal structure and protections under the trust indenture and loan agreement are satisfactory, given that loan payments from the city to the CIC [Civic Improvement Corp.] are absolute and unconditional and are not subject to annual appropriation," Moody's said.

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