After Standard & Poor’s raised Philadelphia’s low investment-grade credit rating earlier this month, the city’s redevelopment agency is scheduled to sell $93.7 million of revenue refunding bonds on Tuesday.
There is no separate retail-order period, but priority will be given to retail investors.
The general obligation bonds are being issued to currently refund $102 million of the authority’s outstanding 2002A bonds.
“We’re very excited about it because it’s our first sale using the GO credit since the S&P upgrade to BBB-plus and it’s going to generate a good amount of refunding savings for us,” city Treasurer Nancy Winkler said about the deal. “We’ve been waiting and watching the market.”
Winkler is responsible for managing and overseeing $8.2 billion of total debt, which includes $3.7 billion backed by the city’s general revenue fund and $4.5 billion in revenue debt.
Philadelphia’s general fund will benefit from the refunding that is estimated to save over $13 million on a present-value basis.
The 2002A bonds were issued to finance a neighborhood transformation initiative.
Current projects under the Philadelphia Redevelopment Authority include residential and retail development in East Falls and Carpenter Square, a vacant parcel of land that a developer selected by the agency will transform into commercial space, townhomes, condominiums, neighborhood open space, and off-street parking.
The transaction will be structured with serial bonds, maturing in 2013 through 2026. The bonds will be callable at par in 2022.
Citi is lead underwriter and Loop Capital Markets is co-manager.
The bonds are limited obligations of the authority, payable solely from revenues derived by the PRA under a service agreement with the city.
The city agrees to include the service fee in its annual operating budget for each fiscal year and appropriate amounts due under the service agreement, in an amount sufficient to pay principal, premium and interest on the bonds.
Moody’s Investors Service said in a report that the obligation of the city to pay the service fee is absolute and unconditional and therefore it rates the authority’s revenue refunding bonds the same as the city’s general obligation debt, A2.
Fitch Ratings assigned an A-minus rating to the bonds, the same rating it assigns the city’s GOs.
Earlier this month Standard & Poor’s raised its rating on Philadelphia’s GO bonds to BBB-plus from BBB. The upgrade also applied to the authority’s GO-equivalent appropriation debt. That was the first upgrade of the city’s GO debt by S&P since 1997.
The agency assigns a positive outlook for its rating. Moody’s and Fitch have stable outlooks for Philadelphia.
“The upgrade reflects our assessment of the city’s progress in eliminating a large general fund deficit in fiscal 2011 and projected general fund surplus in fiscal 2012,” said a report from Standard & Poor’s.
Winkler said the upgrade “confirms that the city is heading in the right direction. It recognizes the administration’s hard work to keep the city on course for fiscal balance.”
Standard & Poor’s called the city’s administration “proactive” in taking action to rebalance operations during a difficult recession.
Fitch cited the city’s diminished financial flexibility, saying it is constrained by a high overall tax burden, negative general fund balance position, and a high level of fixed costs.
Public Financial Management Inc. and Acacia Financial Group Inc., are co-financial advisors for the transaction. Cozen O’Connor and the Law Office of Ann Lebowitz are co-bond counsel.
Winkler said the city has two more bond issues scheduled for the coming weeks, including a $22 million sale of refunding GOs scheduled on or around May 2.
During the week of May 7, the Philadelphia Municipal Authority is scheduled to sell $13.2 million of city-agreement revenue bonds in two series. Around $6.8 million of the revenue bonds will be issued for the government building energy conservation project.
The second series of $6.4 million of qualified energy conservation bonds will be federally taxable.
Winkler said that proceeds will go toward energy-conservation projects at the city’s main office buildings, noting that Mayor Michael Nutter’s goal is to make Philadelphia one of the country’s greenest cities.