Standard & Poor's Wednesday raised its long-term rating and underlying rating on Allentown, Pa.'s general obligation debt three notches to A-plus from BBB-plus. The outlook is stable.

S&P cited the"significantly improved budgetary flexibility" that followed the 118,000-population city's water-and-sewer concession lease with Lehigh County Authority.

"In addition, the stable outlook reflects Standard & Poor's expectation that the city will likely maintain what the rating service considers its strong reserves since management indicates it does not plan to spend down available fund balance," S&P added.

At the same time, S&P assigned its A-plus rating and stable outlook to the city's $15.6 million Series 2015A GO bonds and $11.6 million Series 2015B bonds.

Major deals in 2012 and 2013, which Mayor Ed Pawlowski called "significant game-changers," caught the attention of the capital markets.

Allentown sold $224.4 million in bonds to finance the construction of a downtown business district, centered around an 8,500-seat arena, and leased its water and sewer system to relieve itself of an unfunded pension liability that Pawlowski said could have consumed up to one-third of Allentown's general fund budget by 2015.

"In all my public presentations to promote the concession lease of the city's water and sewer utility system, I stressed that it would solve the pension crisis, stabilize the city's tax rate, rebuild our reserves and restore our rating with the bond agencies," said Pawlowski. "The very positive news from S&P completes the last piece of the puzzle."

The transactions won The Bond Buyer's Deal of the Year honors for the Northeast region for 2013.

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