According to Moody’s, the new rating reflects the city’s approximately $120.3 million debt as well as “four consecutive operating deficits which have largely been driven by aggressive budgeting of city revenues and reserve appropriations to balance the budget.”
Investors use credit ratings such as Moody’s to determine the risk of a municipality’s defaulting on debt payments. A lower rating can force municipalities to pay higher interest rates to compensate for the risk, increasing the cost of borrowing.
Allentown’s weak socioeconomic profile — a sizable and mature urban tax base with below-average “socioeconomic indices” — and limited financial flexibility are challenges to the city, according to Moody’s.
Investors are shunning Bon-Ton Stores Inc.‘s bonds – a bad sign for the York-based department store chain with seven stores in the Lehigh Valley.
In contrast, other retailers have recently gained from rising consumer confidence in the U.S.
Bon-Ton’s $480 million of 10.25 percent notes due in March 2014 lost 2.8 percent last month, the worst performance of any bonds in the Bank of America Merrill Lynch U.S. High Yield Super Retail Index, which climbed 1.7 percent overall. Moody’s Investors Service put its Caa1 rating for the securities on “negative outlook” on Dec. 1, citing the company’s “persistent underperformance.”
Due to the charges against Jerry Sandusky, a major credit agency is reviewing Penn State’s Aa1 bond rating for a possible downgrade. Moody’s Investors Service stated on Friday they have put Penn State’s bond rating under review due to the damage of the university’s reputation by the child sexual abuse scandal.
Moody’s will assess things like lawsuits brought against the university, enrollment decline, loss of donations and any change in the university’s status with the Commonwealth of Pennsylvania.
Needless to say, this action could negatively impact Penn State and the university’s ability to recover from the scandal. Penn State is a major employer in Pennsylvania. According to Wikipedia,”The university is now the largest in Pennsylvania, and in 2003, it was credited with having the second-largest impact on the state economy of any organization, generating an economic effect of over $17 billion on a budget of $2.5 billion.”