Summary:

Pennsylvania Economic Development Financing Authority Dauphin County, Pennsylvania; General Obligation
Primary Credit Analyst: Lindsay Wilhelm, New York (1) 212-438-2301; lindsay.wilhelm@standardandpoors.com Secondary Contact: Linda Yip, New York (1) 212-438-2036; linda.yip@standardandpoors.com

Table Of Contents
Rationale Outlook Related Criteria And Research

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Summary:

Pennsylvania Economic Development Financing Authority Dauphin County, Pennsylvania; General Obligation
Credit Profile
US$98.998 mil jr gtd parking rev bnds (Dauphin Cnty) (Capitol Region Parking Sys) ser 2013B 1-4 due 01/01/2054 Long Term Rating AA/Stable New

US$70.999 mil jr insured/gtd parking rev bnds (Dauphin Cnty) (Capitol Region Parking Sys) ser 2013C 1-3 due 01/01/2054 Long Term Rating AA/Stable New

Rationale
Standard & Poor's Ratings Services assigned its 'AA' long-term rating and stable outlook to Pennsylvania Economic Development Financing Authority's (PEDFA's) parking system revenue bonds (Capitol Region Parking System) series 2013B junior guaranteed parking revenue bonds and 2013C junior insured/guaranteed parking revenue bonds. At the same time, Standard & Poor's affirmed its 'AA' rating, with a stable outlook, on Dauphin County's general obligation (GO) bonds outstanding. The rating is based on Dauphin County, Pa.'s GO pledge. The series B and C bonds are junior-lien bonds, payable from parking revenues after operating expenses and series A debt service. The series A bonds have a senior lien and will be paid from parking revenues, including a parking lease with the commonwealth's department of general services (DGS) for more than 50% of off-street spaces within the parking system, which consists of 7,694 off-street spaces and 1,260 on-street spaces (for more information on the series A bonds, please refer to the analysis published Dec. 3, 2013, on RatingsDirect). Pursuant to the series 2013B guaranty agreement, Dauphin County will pledge its full faith, credit, and taxing power for the budgeting and appropriation and punctual payment of debt service on the series B bonds. Pursuant to the series 2013C guaranty agreement, in the event that Assured Guaranty Municipal Corp. (AGM) fails to make debt service payments under the terms of the bond insurance policy, the county is pledging its full faith, credit, and taxing power for the budgeting, appropriation, and payment of debt service. The trust estate for the bonds consists of parking revenues excluding gross receipts taxes payable to Harrisburg and parking lease payments from the DGS; a first-priority lien on the open-end leasehold mortgage, security agreement, fixture filing, and assignment of leases and rents; and the authority's rights under the asset transfer agreement, the lease, the DGS parking lease, and the PEDFA intergovernmental cooperation and servicing agreements. The authority's annual rate covenant consists of two tests. One is that parking system revenue is sufficient to cover current expenses, debt service on the bonds, replenishment of debt service reserve funds (if any), asset manager performance and operator performance fees, city payments and additional rent, sums payable to the authority, and amounts needed

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Summary: Pennsylvania Economic Development Financing Authority Dauphin County, Pennsylvania; General Obligation

to maintain the capital reserve requirement. The other part of the rate covenant is that revenues net of current expenses are not less than 125% of the debt service on all bonds (series A, B, and C bonds). A rate covenant violation may not be an event of default under the indenture, if certain remedial procedures are followed. The additional bonds test for the series A bonds requires that PEDFA demonstrate 3.0x debt service coverage (based on gross revenues) of the current and proposed senior bonds. Any additional debt for series A, B, or C bonds is subject to county and AGM consent. Debt service on the series B and C junior-lien bonds escalates from approximately $6.6 million in 2015 to $11.8 million in 2044 (year 30) after which the series A bonds are retired. From 2045 (year 31) onward to final maturity in 2054 (year 40), debt service is level at approximately $24.1 million, assuming mandatory sinking fund payments. The full debt service payment represents 6% of the county's adjusted 2012 governmental fund expenditures, escalated at 2% per year. The PEDFA bonds are being issued concurrently with Lancaster County Solid Waste Management Authority's (LCSWMA) series 2013A and B bonds as part of the "Harrisburg Strong" recovery plan approved by the commonwealth legislature (and filed by the office of the receiver created by the commonwealth legislature) to set the city on a sustainable fiscal path. We understand that the two transactions should generate approximately $400 million in net proceeds, which together with various concessions, will defease all of the Harrisburg Authority's Resource Recovery Facility's (RRF) existing debt at closing. Harrisburg's leveraging of the RRF and its required debt service payments were primary drivers of its fiscal stress. The city stopped making payment on the RRF bonds, which resulted in Dauphin County stepping in with its second guaranty on the series 2003D and E bonds for which it has paid more than $25 million to date, with total principal of $105 million still outstanding. Dauphin County also provided a working capital loan of $34.685 million by issuing a bond anticipation note through PNC Bank to avoid a default under the 2007 indenture. For more information on the LCSWMA bonds, please refer to the analyses published Oct. 29, 2013 and Nov. 28, 2013, respectively, on RatingsDirect. In addition to defeasing the existing RRF debt, the transaction will repay the county's working capital note and provide reimbursement of $8.5 million for guaranty payments made in 2013. In the longer term, residual parking revenues after the series B and C bonds are repaid will reimburse the county $20 million for guaranty payments made and other expenses incurred; however, this is unlikely to occur until approximately year 35 of the transaction. The 'AA' GO rating on Dauphin County reflects our assessment of the following credit factors: Strong local economy based on the broad and diverse Harrisburg metropolitan statistical area, which serves as the state capital and county seat; Strong budgetary flexibility albeit with the potential for drawdowns over the next two years; Adequate budgetary performance in fiscal 2012; Very strong liquidity, with strong access to external liquidity; Very weak debt and contingent liability profile; and Strong management based on existing policies. For more information on the GO rating, please refer to the analysis published Nov. 28, 2013, on RatingsDirect.

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Summary: Pennsylvania Economic Development Financing Authority Dauphin County, Pennsylvania; General Obligation

Outlook
The stable outlook reflects our view of Dauphin County's stable local economy and proven willingness to support its debt and contingency obligations. We believe that the proposed PEDFA and LCSWMA transactions will reduce the county's liquidity risk and provide budgetary relief in the near term; however, longer term contingent liability risk remains if parking revenues are insufficient to make debt service payments or if flow control legislation is not extended. It is our view that the county will continue to take the actions necessary to reduce these risks. While we do not anticipate raising the rating within the two-year outlook horizon, we could lower the rating if the county fails to maintain available reserves at target levels and restore structural balance. We believe that a high degree of budgetary flexibility is necessary for the county, given its exposure to contingent liabilities.

Related Criteria And Research

Related Criteria
USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 USPF Criteria: Contingent Liquidity Risks, March 5, 2012

Related Research
S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 Ratings Detail (As Of December 3, 2013)
Dauphin Cnty GO Long Term Rating AA/Stable Affirmed

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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