Philadelphia's $3.8 billion of general obligation bonds and similar debt were reduced to BBB, or two levels above junk, by Fitch Ratings citing the sixth-largest U.S. city's debt, revenue and employee contracts.

The downgrade was prompted by weaker-than-forecast financial results for the year that ended June 30, and for the first quarter of the current fiscal year, Fitch said in a report. Fitch removed its negative outlook from Philadelphia.

The downgrade affects $1.1 billion of general obligation debt and another $2.7 billion of debt secured by the city's general obligation pledge. Philadelphia is rated Baa1 by Moody's Investors Service and BBB by Standard & Poor's.

- Bloomberg News