Moody’s Investors Service Thursday dropped Philadelphia School District’s underlying rating to Ba2 from Ba1 while keeping its enhanced rating at Aa3.
Both ratings cover the district’s $2.2 billion in general obligation debt and its $1.1 billion in parity debt issued through the State Public School Building Authority.
Moody's based the enhanced rating on the district’s participation with the Pennsylvania State Aid Intercept Program.
In the version of the program relevant to the GO debt, if the school district missed an interest or principal payment when due, the state would withhold the district’s state aid and use the money to pay the paying agent. There are debt service sinking funds to make payments in the short-term.
In the version of the program for the building authority debt, the state treasurer diverts the district’s state aid to make payments to the bond trustee.
The enhanced rating is related to Pennsylvania's Aa2 rating.
Moody’s downgrade of the district’s underlying rating was due to the district’s extremely narrow operating fund balances and high dependence on annual cash-flow borrowing. The district’s financial situation is unlikely to improve in the near future, Moody’s analyst Michael D’Arcy and vice president Geordie Thompson wrote.
The Ba2 rating also reflects the district’s weak demographic profile and above-average unemployment and heavy debt burden.
Moody’s has a negative outlook on the underlying rating. The outlook on the enhanced rating is stable.
