The 'A-' rating on Philadelphia, Pa.'s water and sewer revenue bonds reflects: A continued reliance on rate stabilization fund support (projected to be depleted by 2010) to meet covenanted coverage levels; Weak demographic trends, including long-term population decline, that result in overcapacity within the water system; Weak, but stable, collections resulting in a significant level of receivables, bad debt write-offs, and service shutoffs; and A sizable capital improvement program (CIP). Positive credit factors include the following: With the rate stabilization funds, coverage of senior-lien debt service is adequate at 1.20x. Coverage of revenue debt and transfers to the general fund, capital fund, and residual fund is 1.08x. Rates, which are currently low, are expected to rise to moderate levels as
