Summary:

Springfield, Massachusetts; General Obligation; Non-School State Programs; Note

Primary Credit Analyst: Apple Lo, Boston (1) 617-530-8316; apple.lo@standardandpoors.com Secondary Contact: Victor M Medeiros, Boston (1) 617-530-8305; victor.medeiros@standardandpoors.com

Table Of Contents
Rationale Outlook Related Criteria And Research

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

JANUARY 28, 2014 1

1250549 | 300171391

Summary:

Springfield, Massachusetts; General Obligation; Non-School State Programs; Note

Credit Profile
US$14.089 mil GO BANs dtd 02/14/2014 due 02/13/2015 Short Term Rating Springfield ICR Long Term Rating Springfield Non Sch St Prgm Unenhanced Rating AA(SPUR)/Stable Affirmed AA-/Stable Upgraded SP-1+ New

Rationale
Standard & Poor's Ratings Services raised its issuer credit rating (ICR) on Springfield, Mass.' general obligation (GO) bonds to 'AA-' from 'A' based on our local GO criteria released Sept. 12, 2013. The outlook is stable. Standard & Poor's also assigned its 'SP-1+' short-term rating to Springfield's series 2014 GO bond anticipation notes (BANs). At the same time, Standard & Poor's affirmed its 'AA' long-term rating on Springfield's commonwealth-qualified GO qualified school construction bonds and affirmed its 'AA' underlying rating on the city's previously issued commonwealth-qualified debt. The outlook on all long-term ratings is stable. We base the 'AA' ratings on the bonds' eligibility under the commonwealth's Chapter 44A Qualified Bond Act. Massachusetts' emergency finance board has authorized the city to issue bonds or notes, including this issuance, as commonwealth-qualified bonds. The short-term note rating reflects our criteria for evaluating and rating BANs. In our view, Springfield maintains a very strong capacity to pay principal and interest when the notes come due. The city maintains what we view as a low market risk profile because it has strong legal authority to issue long-term debt to take out the notes and is a frequent issuer that regularly provides ongoing disclosure to market participants. The city's full faith and credit secures the notes and bonds. We understand that proceeds of the notes will be used to fund various capital improvement projects and equipment purchases. In our view, the ICR is based on our recently released local GO criteria and reflects our assessment of the following factors: Weak economy, with lower wealth and incomes, but that is considered broad and diverse; Strong budgetary flexibility, with available reserves above 8% of general fund expenditures;

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

JANUARY 28, 2014 2

1250549 | 300171391

Summary: Springfield, Massachusetts; General Obligation; Non-School State Programs; Note Adequate budgetary performance due to costs related to rising pension and other postemployment benefits, as well as subsidy from general fund to trash enterprise fund; Very strong liquidity providing very strong cash levels to cover both debt service and expenditures; Very strong management conditions led by formalized financial policies and an experienced and capable management team; and Very strong debt and contingent liabilities position, mostly reflecting the city's rapid amortization and low debt burden, which is being offset by sizable pension and other postemployment benefits (OPEB) liabilities.

Strong budget flexibility

The city regained local control over its finances on June 30, 2009, and prepared its first budget for the 2011 fiscal year. This occurred after five years of oversight and management by the commonwealth-created Springfield Finance Control Board. For fiscal 2013, available general fund reserves closed with a balance of $92 million, equal to 15.5% of expenditures. For the 2014, the city appropriated about $7.3 million of the stabilization reserve to balance its budget. If the drawdown materializes, the fund balance will still remain within the range of 8%-15%.

Adequate budgetary performance

While we believe that long-term budgeting challenges will persist, in our view, Springfield has recently demonstrated the capacity to execute key reforms to manage near- and long-term fiscal challenges. Budget balancing solutions have largely centered on the expenditure side as the city has little revenue-raising flexibility. We understand Springfield is at its levy ceiling and, therefore, cannot approach voters for an operating override. Annual staffing reductions since fiscal 2008 (through a combination of layoffs and attrition) resulted in a 24% drop in full-time equivalent positions. We believe management's actions to date have been significant and officials report the city is now functioning at its core service level. Management also reports it might make further cuts as needed and expects the fund balance to remain at or near current levels, absent new development. Springfield ended with small general fund and total governmental funds deficit of 0.2% and 0.8%, respectively, after adjusting for timing-difference in state and federal grants revenues and expenditures. We believe that the city's sizable OPEB and pension obligations will continue to pressure the city's financial performance. Offsetting the pressure include additional revenues from the local casino development, which could potentially add $20 million of recurring revenue in the form of excise tax starting fiscal 2017.

Very strong management conditions

We view the city's management conditions as very strong, with formalized and sustainable financial practices combined with a capable and experienced management team.

Very strong liquidity

Supporting Springfield's finances is what we consider strong liquidity, with total government available cash at 20% of total governmental fund expenditures and at 380% of debt service. Further enhancing our view of the city's liquidity position is that Springfield maintains strong access to external liquidity. The city is a regular market participant, having issued bonds frequently in the past several years, including GO bonds and short-term BANs.

Very strong debt and contingent liability profile

Following this bond issue, Springfield has about $247 million of total direct debt outstanding. Included in this calculation is about $14 million of BANs outstanding. Overall, the city's total governmental funds debt service is 5% of total governmental funds expenditures and net direct debt is 22% of total governmental funds revenue, levels we

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

JANUARY 28, 2014 3

1250549 | 300171391

Summary: Springfield, Massachusetts; General Obligation; Non-School State Programs; Note

consider very strong. Factored into our ratios is reimbursement from the state on school construction projects. Bolstering our view of the city's debt profile is that about 86% of principal debt will be retired over 10 years. In our opinion, the city's pension and OPEB liabilities remain a credit concern, but we acknowledge management has been proactive in managing them. Despite these efforts, we anticipate costs continuing to rise through the medium term given the size of the liabilities and funded ratios. Pension and OPEB costs have risen in the past few years to about 8.8% of total governmental fund expenditures in 2013. As of Jan. 1, 2012 (the latest actuarial valuation), the estimated unfunded actuarial accrued liability for the city's pension plan was $657 million, a 29% funded level. The funding schedule goes through 2037. Springfield's OPEB unfunded liability was about $1 billion as of June 2012, with an annual OPEB cost of $69 million, of which the city paid $31 million of actual costs, or 45%. The city participates in the Commonwealth of Massachusetts' Group Insurance Commission, and received some savings in its health insurance. The city has also set up an irrevocable OPEB trust to address the liability. Management is considering transferring about $5 million of its chapter 656 reserve to the trust. However, concrete plans in funding the trust have not been finalized.

Weak economy
Springfield serves a population estimate of 153,000 in Hampden County in western Massachusetts, about 90 miles west of Boston and 25 miles north of Hartford. In our view, while we consider the regional economy of Springfield broad and diverse, we note wealth and incomes are below average relative to the commonwealth and the nation. The city's projected per-capita effective buying income is 63% of the U.S. level. County unemployment averaged 8.5% in 2012, higher than both the state and national averages. Per-capita market value for the city is about $45,000 for fiscal 2014. Springfield's assessed value has declined by 15% since fiscal 2009 with a small increase in fiscal 2014 to $6.9 billion.

Strong Institutional Framework

We consider the Institutional Framework score for Massachusetts cities as strong. See Institutional Framework score for Massachusetts, published Sept. 12, 2013.

Outlook
The stable outlook on the program rating reflects our outlook on the commonwealth rating. The stable outlook on the ICR reflects Springfield's strong reserve levels and our expectation that management will maintain adequate financial performance and very strong management practices in the near term. Precluding a higher rating is the city's weak economy, as well as large pension and OPEB liabilities and costs. We could lower the rating if Springfield's budgetary performance or reserve decline significantly due to its continuous transfers to trash enterprise funds and rising long-term liabilities. With these reasons, we do not expect to change the rating within our two-year outlook horizon.

Related Criteria And Research

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

JANUARY 28, 2014 4

1250549 | 300171391

Summary: Springfield, Massachusetts; General Obligation; Non-School State Programs; Note

Related Criteria
USPF Criteria: Local Government GO Ratings Methodology And Assumptions, Sept. 12, 2013 Institutional Framework Overview: Massachusetts Local Governments, Sept. 12, 2013 USPF Criteria: Bond Anticipation Note Rating Methodology, Aug. 31, 2011 USPF Criteria: State Credit Enhancement Programs, Nov. 13, 2008

Related Research
S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 Ratings Detail (As Of January 28, 2014)
Springfield GO qual sch construction bnds (State Qualified) due 06/01/2027 Long Term Rating Springfield (Non-School State Prog) (AGM) Unenhanced Rating Springfield Non sch st prog Unenhanced Rating
Many issues are enhanced by bond insurance.

AA/Stable

Affirmed

AA(SPUR)/Stable

Affirmed

AA(SPUR)/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.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

JANUARY 28, 2014 5

1250549 | 300171391

Copyright 2014 by Standard & Poor's Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

JANUARY 28, 2014 6

1250549 | 300171391