ALLENTOWN – The borough has its first credit rating – and it is a good one.
That was the conclusion offered by Sherry Tracey, senior managing director of Phoenix Advisors, who worked with Allentown officials to secure the credit rating.
During the May 14 meeting of the Borough Council, Tracey announced to municipal officials and members of the public that Standard and Poor’s Global Ratings has assigned its AA issuer credit rating (ICR) and stable outlook to Allentown.
“The borough is to be commended for achieving that rating,” she said, describing the AA rating as being “very strong.”
“The analysts are most conservative on a first-time rating. Allentown came close to an AA+ rating. The analysts will look at the rating over time,” Tracey said.
Mayor Greg Westfall and the council members expressed appreciation for the rating and thanked Tracey and Chief Financial Officer June Madden for their efforts on behalf of the borough in this endeavor.
Asked why Allentown pursued a credit rating at this time, Madden said a credit rating “is required by the New Jersey Infrastructure Bank (NJIB) for their short-term and long-term financing, which the borough is pursuing with its utility projects.”
Asked how Allentown would benefit from having a credit rating, Madden said, “a good rating of AA, like we received, will benefit us with our long-term interest financing rates with the NJIB.”
During her remarks to the council, Tracey explained that with water utility and sewer utility projects scheduled in Allentown for the next few years, there will be new debt and officials will have to examine the possibility of increasing rates.
In a press release, Standard and Poor’s said, “The ICR reflects our view of Allentown’s general creditworthiness and represents our forward-looking opinion of the borough’s capacity and willingness to meet financial commitments as they come due.
“We base the rating on the borough’s very strong and stable residential economic base,” S&P Global Ratings credit analyst Timothy Barrett said in the statement. “We believe Allentown’s conservative budgeting has helped the borough maintain strong performance, in addition to very strong reserves and liquidity.”
S&P Global Ratings said in the statement, “We expect the borough will likely maintain its strong budgetary performance in fiscal 2019 and that it will maintain reserves close to its current level, which we consider very strong.
“However, Allentown’s below-average wealth levels relative to that of similarly rated peers, in addition to the potential for increased fixed charges in future years relating primarily to underfunded state-administered pension plans, somewhat limit upside potential over the next couple of years.”
S&P Global Ratings said the AA rating reflects its view of Allentown’s:
• Very strong economy, with access to a broad and diverse metropolitan statistical area;
• Adequate management, with standard financial policies and practices under our Financial Management Assessment methodology;
• Strong budgetary performance, with balanced operating results in the current fund in fiscal 2017 according to audited results, as well as in fiscal 2018, according to unaudited results;
• Very strong budgetary flexibility, with an available fund balance in fiscal 2017 of 38% of operating expenditures;
•Very strong liquidity, with total government available cash at 76.9% of current fund expenditures … and access to external liquidity we consider strong;
• Weak debt and contingent liability profile, with debt service carrying charges at 9.6% of expenditures and net direct debt that is 42.2% of current fund revenue, and what we view as a large pension and other postemployment benefit obligation, but rapid amortization, with 85.5% of debt scheduled to be retired in 10 years;
• Strong institutional framework score.
“The stable outlook reflects our opinion of Allentown’s very strong economy, bolstered by the borough’s access to both Philadelphia and New York City, as well as very strong budgetary flexibility. Further supporting the rating is the borough’s very strong liquidity.
“We believe management will make the necessary budget adjustments in order to align current fund expenses with revenues and maintain a structurally balanced budget. As a result, we do not expect to change the rating over our two-year outlook horizon.
“Should the borough’s economic metrics improve to levels more commensurate with that of higher rated peers while maintaining very strong budgetary flexibility and liquidity, we could raise the rating.
“If reserves decline such that budgetary flexibility worsens to a level no longer commensurate with that of similarly rated peers, or if increases in the borough’s fixed costs, for example due to increases in pension expenses, pressures financial performance, we could lower the rating,” S&P Global Ratings said in the press release.
Council members unanimously passed a resolution authorizing a payment not to exceed $15,000 to be paid to Standard and Poor’s for the borough’s credit rating.
