Moody's Investors Service said it has downgraded to Ba2 from Ba1 the rating of the Philadelphia School District, Pa., affecting $2.2 billion in general obligation debt directly issued by the district and $1.1 billion in parity debt issued through the State Public School Building Authority (SPSBA); the outlook remains negative.
The bonds are secured by the school district's general obligation, as it has pledged its full faith and credit and taxing power to secure payments on its directly-issued GO bonds as well as payments owed to the SPSBA on its lease revenue bonds.
The downgrade to Ba2 reflects the district's weak financial position, characterized by extremely narrow operating fund balances and a high level of dependence on annual cash flow borrowing to fund operations.
The district's financial position is unlikely to improve over the medium term given cost pressures related to charter schools, debt service and pensions, and a limited ability to increase revenues to support operations.
The Ba2 also reflects the district's weak demographic profile and above-average unemployment, modest property value growth, and a heavy debt burden with moderate exposure to variable rate debt and interest rate swaps.