OREANDA-NEWS. March 28, 2016. Fitch Ratings affirms the 'AA+' rating on the following Pennsylvania Intergovernmental Cooperation Authority (PICA) special tax revenue refunding bonds (City of Philadelphia Funding Program):

--Approximately \\$190.12 million, series 2009;
--Approximately \\$125.835 million, series 2010.

The Rating Outlook is Stable.

SECURITY
The outstanding bonds are limited obligations of the authority payable from pledged revenues, consisting of a 1.5% tax on wages and other compensation earned by city residents, as well as the net profits earned in business, professions, and other activities conducted by residents. Payment of the pledged revenues to PICA is not subject to city or state appropriation. Additional bonds may be issued if pledged revenues for any consecutive 12 months of the 15 months preceding the date of issuance equal at least 3x the amount of pro forma maximum annual debt service (MADS).

KEY RATING DRIVERS

STRONG LEGAL FRAMEWORK: The pledged revenue stream is insulated from the operations of the city of Philadelphia and the commonwealth of Pennsylvania. Pledged revenues remain the property of PICA until paid to the trustee and are not subject to commonwealth or city appropriation. Additional bondholder protections include non-impairment covenants from the commonwealth and city, a strong additional bonds test (ABT), and a favourable flow of funds.

ROBUST COVERAGE: Pledged revenues have continued to cover annual debt service by a strong margin. Coverage of maximum annual debt service (MADS) from fiscal 2015 receipts exceeded 6.2 times (x) and future coverage is expected to remain at a high level given Fitch's expectations for stable pledged revenue growth, the limitation on new debt issuance, and a descending amortization schedule until the bonds mature in 2023.

SOLID ECONOMIC UNDERPINNINGS: Pledged revenues are derived from a broad economic base, benefiting from the city's role as a regional center for healthcare and higher education.

RATING SENSITIVITIES

STABILITY OF COVERAGE: An unexpectedly sharp and sustained decline in pledged revenues could trigger negative rating pressure.

CREDIT PROFILE
PICA was created by state legislation in 1991 to assist the city in its financial recovery. The authority has broad powers to review and approve city budgets and multi-year financial plans and can certify noncompliance to the state, which would result in withholding of certain state aid due to the city. PICA was given statutory authority to issue wage tax-secured bonds to fund the operating deficits and capital expenditures of the city. At this time PICA has exhausted its borrowing authorization; any additional issuance not for refunding purposes would require board consent and legislative approval by the Commonwealth. PICA reports that it has no plans to seek additional authorization.

STRONG LEGAL PROVISIONS

The special tax revenue bonds are secured by a 1.5% tax on the salaries, wages, commissions and other compensation earned by residents of the city and on net profits earned in business, professions and other activities conducted by residents of the city. The 1.5% tax is exclusively the property of PICA, and the city and state have covenanted not to reduce the tax as long as PICA bonds are outstanding.

The city acts as collector of the authority tax in an agency capacity under an intergovernmental agreement with the state revenue department. At all times, the tax revenues remain the property of PICA. After payment of debt service and any subordinate payments, residual revenues flow to the city.

ROBUST COVERAGE

Coverage of annual debt service by pledged revenues has continued to strengthen, prompted by good historical revenue growth and a declining debt service schedule. Receipts grew by an annual average of 3.1% between fiscals 2005-2015, including a 7.5% increase year-over-year (yoy) in fiscal 2015 to \\$409.3 million. Collections for the first seven months of fiscal 2016 were up a robust 9.4% yoy. The mayor of Philadelphia's recent executive budget projects 5.7% yoy growth in fiscal 2016 and 3.6% growth in fiscal 2017. Fitch views the projections as reasonable given recent performance and the city's solid economic position.

Pledged revenues would have to decline a highly unlikely 20.5% annually to reach sum-sufficient coverage. Even in the depths of the last recession the weakest yoy performance was a 1.7% decline in fiscal 2010.

Fitch currently rates the city's general obligation debt 'A-' with a Stable Outlook. For more information on the city's economy, see Fitch's press release "Fitch Rates Philadelphia Auth for Industrial Development, PA's Rev Rfdg Bonds 'A-'", dated Dec. 22, 2015 and available on Fitch's web site at 'www.fitchratings.com'.