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Fitch Places Philadelphia Gas Works Sr Lien Revs on Watch Negative.

NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
 -- Fitch Ratings Fitch Ratings

An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris.
 places the underlying 'BBB-' rating on the City of Philadelphia, PA's approximately $360 million outstanding gas works a manufactory of gas, with all the machinery and appurtenances; a place where gas is generated for lighting cities.
- Raymond.

See also: Gas
 revenue bonds (1975 ordinance) senior lien senior lien n. the first security interest (lien or claim) placed upon property at a time before other liens, which are called "junior" liens. (See: mortgage, deed of trust, lien, UCC-1)  bonds and $734.7 million gas works revenue bonds (1998 ordinance) senior lien bonds, as well as the 'BB+' rating on $15.5 million subordinated gas works revenue bonds (1998 ordinance) junior lien bonds on Rating Watch Negative.

The 'BBB-' rating chiefly reflects Philadelphia Gas Works' (PGW PGW Philadelphia Gas Works
PGW Publishers Group West
PGW Precision Guided Weapons
PGW Payment Gateway
PGW Pressure Gas Welding
PGW Pesticides in Ground Water
PGW Parallel Gap Welding
PGW Propylene glycol/water
PGW Project on Girls and Women
) constrained con·strain  
tr.v. con·strained, con·strain·ing, con·strains
1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force.

 liquidity position, which has not been significantly bolstered by improvements in collections of outstanding accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying  in fiscal 2004 and 2005. Fulfillment of operating commitments, including debt service, continues to rely heavily on external sources of liquidity. The Rating Watch Negative reflects Fitch's uncertainty that improved collection rates can be sustained during winter 2005-2006, given the anticipated large increase in monthly bills due to the increased cost of gas. Liquidity is projected to remain constrained during fiscal 2006, and the budget assumes a 94.5% collection rate, which is high compared to historical rates. A drop in collection rates could further exacerbate the liquidity problem, jeopardizing the system's ability to operate without seeking further outside sources of funding. The state-regulated public utility commission has demonstrated willingness to approve large increases in PGW's gas cost rate to offset the rising cost of the commodity, recently approving a 29% increase in the gas cost rate that will increase retail customer bills by an average of $335 a year.

Removal of the Negative Watch could be achieved by sustained improvement in revenue collection procedures to boost the utility's liquidity position. The passage of Act 201 provides PGW with tools to make solid improvements in this area. In addition, a strengthening of the city's weakened financial position (Philadelphia's GO bonds rated 'BBB+' with a Negative Outlook by Fitch) would be viewed favorably fa·vor·a·ble  
1. Advantageous; helpful: favorable winds.

2. Encouraging; propitious: a favorable diagnosis.

. Fitch believes that threats to sustained financial improvement include the high cost of gas coupled with the difficulties in implementing the Act 201 provision that allows the utility to shut off service to delinquent accounts during winter months, as well as the stressed financial position of the city. Fitch will continue to monitor the development of a recent proposal by the governor to transfer the utility to state authority and would view such a transfer favorably.

A major contributor to PGW's recent financial difficulties was a dramatic rise in accounts receivable. Following a substantial rate increase, net receivables Net Receivables

A company's accounts receivable (money owed to the company) minus bad debts.

If a company estimates that 2% of its sales are never going to be paid, then net receivables equals 98% (100% - 2%) of the accounts receivable.
 jumped 39% to $93 million in fiscal 2003 and remained at $93 million in fiscal 2004. Due to improved collection efforts during fiscal 2005, accounts receivable declined somewhat to $85 million. The fiscal 2005 collection rate of 94.8% was much improved from a low 87% for fiscal 2003. Despite expanded gas shut-off capabilities, Fitch remains concerned that PGW will not meet collection rates assumed in the fiscal 2006 budget given the impact of rising commodity prices on monthly bills for a fairly low-income customer base. A decline in collections would further stress the utility's already constrained liquidity position.

Reflecting low revenue yield, PGW continues to rely heavily on external liquidity, including cash flow support from the city and an expanded $100 million commercial paper credit. The utility was able to renew its credit line in August 2005 for a 21 month period. PGW's owner, the City of Philadelphia, is likely to post a third consecutive year of accumulated general fund deficits in fiscal 2005, making it less able to support the utility as it has in the past. Nevertheless, the city has adopted a five year operating plan that defers a $45 million PGW loan repayment and grants back the utility's annual $18 million return on investment payment through fiscal 2009.

Debt service coverage declined somewhat in fiscal 2004 compared with fiscal 2003. Aggregate coverage, inclusive of inclusive of
Taking into consideration or account; including.
 all long-term debt Long-Term Debt

Loans and financial obligations lasting over one year.

For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt.
, was 1.18 times (x) in fiscal 2004 compared with 1.28x in fiscal 2003. Combined coverage in fiscal 2005 is estimated to be 1.49x, based on 10 months of actual results. Fitch notes that coverage using the ordinance methodology is based on billed charges, or consumption, not on actual cash received. Fitch calculates that cash generated from operations in fiscal 2004 provided weak coverage of slightly less than 1.0x on all debt service obligations.

Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used.

In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide.
 of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental  are also available from the 'Code of Conduct' section of this site.
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Publication:Business Wire
Date:Oct 14, 2005
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