NEW YORK - Moody's Investors Service has assigned an A2 rating with a negative outlook to the city of Allentown, Pa.'s $13.65 million general obligation bonds, Series A of 2011, and downgraded to A2 from A1 the rating on $100 million of outstanding parity debt.
In addition to directly-issued general obligation bonds, the city also guarantees water, sewer, and a portion of parking bonds. All of this debt is ultimately secured by the city's general obligation, unlimited tax pledge.
Approximately $4 million of proceeds from the current issue will be used to fund various capital improvements while approximately $9.65 million will be used to refund at least portions of the city's general obligation bonds, Series of 2001, the city's guaranteed water revenue bonds, Series of 2001, and the city's guaranteed sewer revenue bonds, Series of 2001.
The total projected present value savings from the refund is $561,000 or 5.99% of par with no extension to existing maturity.
The downgrade to the A2 rating factors the city's financial deterioration due by three consecutive operating deficits which have largely been driven by aggressive budgeting of city revenues and reserve appropriations to balance the budget in 2008 and 2009. The A2 rating incorporates a sizeable and mature urban tax base with below-average socioeconomic indices and a slightly above average, but manageable, debt burden with below average payout.
The negative outlook reflects Moody's belief that the city's financial position will continue to be challenged due to narrow financial flexibility given the history of structurally imbalanced operations. Over the near-term, Moody's will monitor the city's ability to stabilize the currently narrow financial position and to begin to replenish its reserves; absent these changes, the city's creditworthiness will be pressured.
