OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to the following limited tax general obligation (LTGO) bonds issued for the school district of the city of Scranton based on the Pennsylvania School Credit Enhancement Intercept Program:

--$5.63 million LTGO Notes Series A of 2016;
--$2.83 million LTGO Bonds Series B of 2016.

The 'A+' rating is linked to the commonwealth's GO rating based on the provisions of the intercept program. Pursuant to Fitch's criteria for rating such state enhancement programs, once it is confirmed that the state credit enhancement program criteria can be applied, the credit quality of the program replaces the underlying credit quality of the borrower. Scranton's underlying credit quality is weak.

The proceeds of the bonds will be used to refund portions of various series of outstanding general obligation notes and bonds for budgetary savings taken throughout the life of the bonds.

The Rating Outlook is Stable.

SECURITY

The enhanced rating on the bonds reflects protections under the Pennsylvania School Credit Enhancement Law. Fitch rates the commonwealth's pre-default school aid intercept (per section 633 and 785(a) of the School Code) enhancement program 'A+' with a Stable Rating Outlook, one notch below Pennsylvania's 'AA-' general obligation (GO) rating (also with a Stable Outlook).

KEY RATING DRIVERS

RATING BASED SOLELY ON PROGRAM: The enhanced rating is based solely on the programmatic rating of the school credit enhancement intercept and does not take into account the underlying credit quality of the district, which is likely well below investment grade.

STRONG PROGRAMATIC MECHANISMS: The Pennsylvania School Credit Enhancement Intercept Program rating is based on the mechanism providing for the intercept of state funds due to Pennsylvania
school districts to avert missed debt service payments. The rating is available for application to debt issued by Pennsylvania school districts that is structured with 1.25x interceptable state aid coverage and adequate sinking fund payment timing.

SINKING FUND PAYMENTS: The district covenants to deposit sufficient funds to cover principal and interest payments into a sinking fund 15 days prior to the due date, to be held by a paying agent. If the amount is insufficient to pay debt service in full, notice will be given to the commonwealth Secretary of Education. The Secretary shall withhold from any commonwealth appropriation due to the district, if any, in an amount equal to the sum of the debt service payment for prompt payment.

SATISFACTORY STATE AID COVERAGE: Based on the district's fiscal 2016 adopted budget, the district anticipated $65 million in interceptable state aid including Basic Education Aid. This covers maximum annual debt service by 3.7x. State funding to the district has been stable to growing in recent years, consistent with generally stable enrollment trends.

ADEQUATE TIMING OF STATE AID: Based on the proposed debt service schedule and the district's adopted budget and historical results, the district is expected to have sufficient appropriated state aid for the commonwealth to intercept at the time of required sinking fund payments. Fitch expects the commonwealth to continue its long history of support to ensure the district maintains its ability to meet all of its future debt service obligations.

COMMONWEALTH BUDGET IMPASSE: Fitch does not view the commonwealth budget impasse as a threat to the ratings on Pennsylvania's school credit enhancement program. Pennsylvania's interim budget reinforced Fitch Ratings' belief that the commonwealth remains committed to supporting full and timely payment of school district debt service commitments despite its ongoing budget contention. (For more information, see 'Fitch: Pennsylvania Interim Budget Supports Value of School Credit Enhancement Programs', available at www.fitchratings.com, dated Jan. 11, 2016.)

STATE AID APPROPRIATION: The interim budget signed by the Governor on Dec. 29, 2015 provided six months of Basic Education Funding for school districts. Additionally it provided for a full year of appropriation authority in other line items for school districts, including special education and transportation aid, and thereby established a clear path for the commonwealth to direct revenues to bond trustees as needed for the school credit enhancement programs.

RATING SENSITIVITIES

STATE GO RATING: The programmatic rating is sensitive to changes in the state GO rating, to which it is linked.

STATE COMMITMENT TO SCHOOL DISTRICTS: Any changes to the commonwealth's longstanding commitment to schools and the enhancement program would have a negative impact on the programmatic rating.

COVERAGE BY STATE AID: The rating is also sensitive to the expectation of continued solid coverage of debt service by interceptable state aid.

CREDIT PROFILE

The district is coterminous with the City of Scranton, which serves as the commercial center of Northeastern Pennsylvania and is the county seat of Lackawanna County. The City lies approximately 130 miles north of Philadelphia and approximately 125 miles west of New York City. District enrollment has been relatively stable with 9,961 student enrolled in 2016.