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Moody’s affirms District 88 A1 underlying rating, retains negative outlook

July 12, 2013
The Journal

NEW YORK - Moody's Investors Service has affirmed District 88's A1 rating on its outstanding general obligation debt, the service reported Tuesday.

Concurrently, Moody's has assigned a Aa2 enhanced rating with negative outlook to $680,000 General Obligation Bonds, Series 2013A, with expected sale date July 11.

Proceeds of the bonds will be used to construct parking lots at district facilities, states Moody's.

The bonds are secured by the district's general obligation unlimited tax pledge. The A1 underlying rating reflects the district's moderately-sized and growing agricultural tax base; declining enrollment; adequate financial operations with narrow reserve levels and recent revenue enhancements; and low debt burden. The negative outlook reflects Moody's expectation that the district's reserves will remain narrow despite the recent repayment of delayed state aid and passage of a new excess operating levy. Removal of the negative outlook is contingent on growth in General Fund balance and liquidity over the near term, says Moody's. The enhanced Aa2 programmatic rating and negative outlook are due to the additional security provided by the State of Minnesota's School District Credit Enhancement Program (MSDE).

Moody's lists the following strengths of the district:

Stable local economy with strong agricultural presence and increasing tax base value

Repayment of delayed state aid and passage of excess operating levy will improve liquidity and reduce cash flow borrowing.

Low debt burden

The service lists the following challenges to the district:

Declining enrollment trend

Consecutive years of operating deficits, leading to estimated fiscal 2013 General Fund reserves below its reserve policy

No near-term plans to rebuild reserves, despite recent passage of new excess operating levy to enhance revenues by $1.3 million annually

Recent history of protracted union negotiations

The negative outlook reflects Moody's expectation that the district's reserves will remain narrow despite the recent repayment of delayed state aid and passage of a new excess operating levy. Removal of the negative outlook is contingent on growth in General Fund balance and liquidity over the near term.

A material growth in the General Fund balance and net cash could change the rating up, removing the negative outlook, adds Moody's.

Factors such as a substantial weakening of tax base valuation and/or socio-economic indices, significant declines in enrollment and further declines in General Fund balance and/or cash could bring the rating down.

"These ratings help us to acquire less expensive bonds when we need to borrow money for large projects," Superintendent Jeff Bertrang commented upon request. "These ratings tell the investors that we are a low-risk organization... As [Moody's] mentions, the negative outlook is a result of a district fund balance that is lower than what they would like to see. Having a healthier fund balance provides the district with the necessary cash flow to pay its bills, without having to borrow money. Our state aid payments are not metered out evenly each month, but we have reoccurring monthly expenses. The fund balance is necessary to even out the peaks and valleys of our monthly commitments."

 
 

 

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