S&P revises Pennsylvania's outlook to positive from stable, affirms GO rating

BY SourceMedia | MUNICIPAL | 09/22/23 05:10 PM EDT By Chip Barnett

S&P Global Ratings said Friday it revised Pennsylvania's credit outlook to positive from stable. At the same time, S&P affirmed its A-plus long-term rating on the state's $10.7 billion of outstanding general obligation bonds.

S&P said the outlook reflects "our view that Pennsylvania has continued to make progress toward structural budgetary balance, with positive operating results in five of the past six years, leading to stronger reserves that are better aligned with state policies."

The positive view, S&P added, "also reflects our expectation that forecast outyear structural imbalances would be addressed with emphasis on sustainable solutions commensurate with the current rating level. In addition, we expect Pennsylvania's liquidity position will remain stable in the near term."

S&P also affirmed the A rating on the state's appropriation debt, A-minus rating on appropriation bonds issued for the North Versailles Township Industrial Development Authority and the Butler Redevelopment Authority, and BBB-plus rating on the state's moral obligation pledge supporting the Pittsburgh & Allegheny Sports and Exhibition Authority's lease revenue bonds.

Additionally, S&P affirmed the AA-minus rating on multiple priority-lien debt obligations with a linkage to the commonwealth under S&P's priority-lien tax revenue debt criteria. These include the ratings on the Allegheny County Port Authority's special revenue transportation bonds and the Southeastern Pennsylvania Transportation Authority's bonds, public transportation assistance fund.

"The positive outlook on all long-term ratings reflects our view of a one-in-three chance that we could raise the rating over the next two years if the state demonstrates a commitment to structural budgetary solutions that narrow or close projected outyear gaps, while also preserving or increasing reserve balances in its budget stabilization reserve," said Geoff Buswick, an S&P credit analyst.

Earlier this month, Moody's Investors Service (MCO) revised its outlook on Pennsylvania to positive from stable and affirmed the state's Aa3 issuer and GO ratings. Additionally, Moody's affirmed the state's A1 and A2 ratings on outstanding appropriation backed debt, the A1 rating on the Pennsylvania School District Intercept Program and the A2 rating on the Pennsylvania General Municipal Pension System State Aid Program.

"Pennsylvania taxpayers deserve sound financial management from their government ? and this second positive rating outlook in September affirms that our efforts are working and that the Shapiro Administration is putting the commonwealth on a path of fiscal stability," Secretary of the Budget Uri Monson said in a statement.

Moody's also affirmed the A1 rating on Pennsylvania Turnpike Commission's $992 million of outstanding motor license fund-enhanced turnpike subordinate special revenue bonds. The outlooks on all of these bonds have also been revised to positive from stable, Moody's said.

"Multiple credit rating agencies have now affirmed that our commonsense investments and sound fiscal management are setting the commonwealth up for continued success," Gov. Josh Shapiro said. "My administration will strive to ensure that our fiscal outlook remains strong by working with leaders in both parties to continue making commonsense investments that support Pennsylvanians and create safer communities and healthier families, all while remaining fiscally responsible."

Fitch Ratings assigns an AA-minus rating to the state's GOs and has a positive outlook on the credit.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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