Correction: Fitch Rates Philadelphia School District, PA's GO Bonds 'A+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 4, 2004

This is an amended version of a press release issued earlier today, containing revised information in paragraph 2 on the 'BBB' underlying rating being assigned.)

Fitch Ratings assigns an 'A+' rating to the School District of Philadelphia, PA's $785 million general obligation bonds. The Rating Outlook is Stable. The offering consists of $640 million general obligation refunding bonds, series B of 2004 and $45 million general obligation refunding bonds, series C of 2004 (federally taxable), both series to be initially issued as auction reset securities, and $100 million of general obligation bonds, series D of 2004, issued as fixed rate bonds. The entire offering is expected to be insured at closing by Financial Guaranty Insurance Company (FGIC), whose insurer financial strength is rated 'AAA' by Fitch Ratings. The bonds are scheduled for a negotiated sale with Goldman, Sachs & Co. during the week of June 14.

At this time, Fitch also assigns its underlying 'BBB' rating to the bonds now offered and affirms its 'BBB' rating on the school district's approximately $1.5 billion of outstanding general obligation bonds. The Rating Outlook is Stable and it reflects the district's general obligation credit quality without consideration of the added protections afforded bondholders from the state aid intercept.

The 'A+' rating is based on state law, which requires the withholding of state appropriations and their direct payment to bond holders or their paying agents, in the event of a failure by the school district to make debt service or sinking fund payments as scheduled. Coverage from available state aid is sufficient, in every month but March, to cover all debt service on school district bonds and cash flow notes. Repayment of tax and revenue anticipation notes in the final four months of the fiscal year puts significant pressure on the school district's cash flow, requiring modest use of local receipts to meet debt service. Fitch firmly expects additional leverage on this cash flow given the school district's sizable capital program and adjustments to future note repayment schedules will be necessary to maintain the 'A+' rating.

The 'BBB' underlying rating is based on strong oversight by the commonwealth-controlled School Reform Commission (SRC); the appointment of a highly experienced leadership team to facilitate financial and academic reforms; and management's early progress toward achieving fiscal stability, implementing a comprehensive capital program, and improving the learning environment and educational outcomes.

Clearly defined challenges remain, including the district's limited revenue raising capacity, wage and benefit cost pressures, a debt burden that will rise significantly as deferred capital needs are met, and a tepid local economy that may restrain incremental revenue growth. Of equal concern is the need for prompt, measurable improvement in student achievement. Continued community and stakeholder support, as well as additional state and federal resources, are at least partially predicated on the perception that reforms are making progress.

The fiscal 2005 budget is balanced after an estimated $44 million draw on reserves in fiscal 2004. Achievement of balanced operations is significant for the district after years of large structural deficits. The five-year financial program continues to run modest deficits and the proceeds from the fiscal 2002 deficit bond financing will be exhausted by fiscal 2009, absent further balancing actions. However, management's proven track record of cost control makes progress toward ongoing structural balance less speculative.

The district's $2.1 billion capital plan through 2011 will increase an already significant debt burden, presently measured at $1,536 per capita and 5.9% of market value. The addition of overlapping City of Philadelphia borrowing creates an overall debt level that is among the highest in the urban U.S. Borrowing plans would exhaust the projected $1.1 billion of non-voted debt capacity available to the district after this fiscal year.

The school district plans to enter into spot swap agreements on the refunding bonds to create synthetically fixed rate debt. FGIC will also insure the school district's obligations under the swap agreements.