Tarentum Borough, PA GO Rating Lowered To #BB+# On Fragile Outlook Negative

Stocks and Financial Services Press Releases Tuesday September 12, 2017 09:13
CHICAGO--12 Sep--S&P Global Ratings
CHICAGO (S&P Global Ratings) Sept. 11, 2017--S&P Global Ratings lowered its long-term rating on Tarentum Borough, Pa.'s general obligation (GO) bonds to 'BB+' from 'BBB-'. The outlook is negative.

"The downgrade and negative outlook reflect Tarentum's weakening, fragile and nominally low liquidity position, which was $280,000 at the end of calendar 2015," said S&P Global Ratings credit analyst Anna Uboytseva. "The borough's reliance on its power and water fund is considerable as utilities pay debt service and subsidize general government operations. We cannot be certain that the financially unsound utility can continue to sustainably fund general

government operations.."The borough's full-faith-and-credit-GO pledge secures the 2011 and 2016 bonds.

The borough is one of the few municipalities in the state that operates its own electrical distribution system. It buys electricity from Talen Energy and delivers it at a retail rate to nearly 2,400-2,500 customers. The borough also operates its own water utility. Instead of raising property taxes, Tarentum uses surpluses from power and occasionally water services to subsidize general fund operations. Nearly 25% of general fund revenue was transferred from the enterprise fund in 2015, according to the most recent audit. Moreover, the utility pays the debt service on the 2011 and 2016 general obligation bonds. While we recognize that the borough's management works hard to control expenditures, we think that nominally weak liquidity leaves very little room for error in the budget should revenues, expenditures, or utility transfer assumptions fall short of projections, or should utility require capital to perform emergency capital upgrades on its ageing system. We cannot be certain that the financially unstable utility can continue to sustainably subsidize the general government. Therefore, we think the borough faces major ongoing uncertainties or exposure to adverse business, financial, and economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the debt obligations.

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