Standard & Poor's Ratings Services said it has raised its rating on Pennsylvania Intergovernmental Cooperation Authority's (PICA) special tax revenue bonds (city of Philadelphia Funding Program) outstanding to AAA from AA.

The outlook is stable.

"The rating reflects our view of enabling legislation that precludes additional future debt issuance, and what we consider strong, growing debt service coverage that has been steadily improving in the past decade," said Standard & Poor's credit analyst Karl Jacob.

"The rating also reflects our belief that projected debt service coverage will continue to steadily grow as new debt issuance, excluding refundings, is prohibited; the wage tax will continue to grow; and annual debt service requirements on existing debt will decline," Jacob added.

Other rating factors include: a potentially economically sensitive revenue stream that has performed reasonably well over time including through the great recession; and Philadelphia's employment base, which is projected to increase at a moderate pace over the mid-to-long term.

The bonds are secured by a first lien on a 1.5% wage tax levied on city residents and on the net profits earned in business, professions, and other activities conducted by Philadelphia residents.

PICA was created in June 1991 to provide a financing vehicle to assist in resolving Philadelphia's fiscal crisis. By legislation, this portion of the tax was ceded by the city to PICA in June 1991.

Philadelphia has no recourse to these taxes until PICA debt service needs, as well as indenture requirements for reserves, are fully funded; excess wage taxes then flow as surplus for general city purposes.

The stable outlook reflects what strong coverage and declining amortization costs, which would provide a cushion should pledged revenue decline, coupled with PICA's statutory inability to issue additional debt.

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