Philadelphia set to issue its first GOs in four years

Philadelphia is ready to come to market for the first time since 2021. 

The City of Brotherly Love plans to price $817 million of general obligation bonds on Tuesday. Much has happened to Philadelphia since its last issuance, from a new mayor to several credit rating upgrades. 

“We’re hoping to see investor demand since we haven’t been in the market in a few years,” said Philadelphia Treasurer Jacqueline Dunn.

The negotiated deal will have three series. 

Series 2025A will consist of $302.835 million of tax-exempts, with maturities from 2033 through 2045. Series 2025B will be $101 million of federally taxable bonds maturing from 2026 to 2033. And Series 2025C, a tax-exempt refunding series with maturities from 2026 to 2038, is planned at $413 million; however, the size is subject to change based on market conditions, according to Dunn. 

Series 2025A and 2025B will support the city’s capital projects. The 2025C bonds are refunding various series from 2015, 2020 and 2021. Series A and C will be callable in 2035. 

BofA Securities and Loop Capital are the lead managers for the deal. Cabrera Capital Markets, Stifel, Stern Brothers and TD Securities are co-managers. PFM and Phoenix Capital Partners are co-municipal advisors. Cozen O’Connor and Ahmad Zaffarese are co-counsels. 

The bonds are rated A-plus by Fitch Ratings and S&P Global Ratings and A1 by Moody’s Ratings. 

Philadelphia last issued bonds in 2021.

The city usually issues bonds every other year, Dunn said. In 2023, it had enough revenue and federal grants to fund its capital projects on a pay-as-you-go basis.

In the years since Philadelphia’s last GO deal, Moody’s, Fitch and S&P have all upgraded the city’s rating. Philadelphia now has its highest combination of bond ratings in more than four decades, Dunn said.

The most recent upgrade came in November, when S&P upgraded the city to A-plus from A. 

“The upgrade is based on Philadelphia’s demonstrated long-term commitment to maintaining a credit-supportive financial profile, including making annual additional payments towards its pensions and rebuilding its budget stabilization reserve despite economic and fund balance fluctuations,” S&P analyst Bobby Otter said in the report announcing the revised rating.

“We’re really proud that they recognize — and the other agencies in recent years have recognized — the efforts we put into improving the city’s long-term fiscal health,” Dunn said.

Fitch’s report for the 2025 bonds notes the city’s high reserves — $1.27 billion, or 21.1% of the city’s fiscal 2024 spending — but added Philadelphia plans to draw on its reserves until they reach the city’s target of 6% to 8%.

“We have a big debt service balloon payment for pension obligation bonds in FY ’29, so that will draw down a little on our reserves,” Rob Dubow, Philadelphia’s director of finance, explained. “We also are projecting that the economy will be relatively slow over the next few years, so that will have an impact on our revenue growth.”

Dubow added the city plans to begin building its reserves back up by the end of its current five-year plan. 

Dunn assumes Philadelphia’s next GO deal will come in 2027, but the city will continue to look at the operating budget and consider dedicating funds to pay-as-you-go spending when possible.

Investors looking to buy Philly bonds will likely have other opportunities.

According to this deal’s preliminary offering statement, the city has ordinances authorizing the issuance of up to $500 million airport revenue commercial paper notes, $1 billion of airport revenue bonds (of which around $180 million has been issued), $270 million of gas works revenue notes, $300 million of gas works revenue bonds (of which $92 million has been issued), $400 million of water and wastewater commercial paper notes, and $1.9 billion of water and wastewater revenue bonds (of which around $1 billion has been issued).