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CORRECTION TO TEXT, JULY 13, 2011 RELEASE: MOODY'S ASSIGNS Aa3 RATING TO WENTZVILLE R-IV SCHOOL DISTRICT'S (MO) $30.7 MILLION LEASE PARTICIPATION CERTIFICATES, SERIES 2011

13 Jul 2011

MOODY'S AFFIRMS Aa2 RATING ON $199.9 MILLION OF OUTSTANDING GOULT DEBT

Primary & Secondary Education
MO

Moody's Rating

ISSUE

RATING

Lease Participation Certificates, Series 2011

Aa3

  Sale Amount

$30,730,000

  Expected Sale Date

07/21/11

  Rating Description

Lease Rental

 

Opinion

NEW YORK, Jul 13, 2011 -- The revision to the report can be found in the "ESSENTIAL PURPOSE; DEDICATED PROPERTY TAX LEVY PROVIDES STRENGTH TO SECURITY" section. Replace 15 days with 5 days to the timing of the payment due to the trustee. Revised Release Follows.

Moody's Investors Service has assigned a Aa3 rating to Wentzville R-IV School District's (MO) $30.7 million Lease Participation Certificates, Series 2011. Concurrently, Moody's has affirmed the Aa2 rating on the district's $199.9 million of outstanding general obligation debt.

SUMMARY RATINGS RATIONALE

The certificates are secured by lease payments made by the district, subject to annual appropriation. Payments are payable from all lawfully available funds, though obligations are expected to be paid from the district's Capital Projects Fund. Proceeds of the certificates will be used to pay the cost of constructing, renovating, furnishing, and equipping school buildings, facilities, and sites. The Aa3 rating is notched once from the district's general obligation rating to reflect the risk of appropriation. Also incorporated into the rating assignment is the legal provisions provided to certificate holders through the lease purchase, trust indenture and base lease agreements. A 30-cent Capital Project Fund levy serves as the primary source of payment and is specifically dedicated for repayment of the certificates. The levy provides a projected coverage of 1.1 times annually through the life of the certificates. The issuers Aa2 general obligation rating reflects the district's sizable tax base located in St. Charles County in suburban St. Louis (rated Aa3/ Stable); healthy financial position with sound reserve levels providing a cushion against growth-related expenditure pressures; and above average, though manageable debt burden.

STRENGTHS

- Large full valuation

- Strong socioeconomic indices

- Healthy financial reserves

- Consistent growth in student enrollment

CHALLENGES

- Above average debt burden expected to increase

- Slow principal amortization rate

DETAILED CREDIT DISCUSSION

ESSENTIAL PURPOSE; DEDICATED PROPERTY TAX LEVY PROVIDES STRENGTH TO SECURITY

We believe that the essential purpose of the project, as represented by the Board, provides strong motivation for the district to make timely appropriations for annual lease-rental payments on the certificates. The legal provisions contained within the ground lease, trust indenture and lease agreement provide adequate security for certificate holders. The lease-rental payments are subject to annual appropriation and payable from any lawfully available revenue, though obligations are expected to be paid from the district's 30-cent Capital Improvement levy, which district voters narrowly passed by 50.1% in April 2011. Additional security is provided by the ground lease, which extends 20 years beyond the final maturity (until 2051) of the certificates. The leased assets include three tracts of real estate (three elementary schools) approximating 53 acres. Payment is due to the trustee 5 days before debt service is due.

LOCAL ECONOMY BENEFITS FROM PROXIMITY TO ST. LOUIS; TAX BASE GROWTH EXPECTED TO CONTINUE

The district is located 35 miles west of St. Louis in a rapidly developing area of St. Charles County at the intersection of Interstate 70 and U.S. Highway 40/61. Over the past five years, the sizeable $6.6 billion tax base has experienced strong average annual growth in assessed valuation of 6.1%. Although the district's rate of growth has moderated with regional and national trends, district officials report that construction and development continues. Additionally, management notes the abundance of land available for future development, as evidenced by more than 13,000 lots platted for residential construction. District officials report that early indications suggest that the 2011 reassessment will lead to a valuation decline of approximately 2%. Wealth indices of the district are above state averages with per capita income and median family income at 120.8% and 137% of state levels, respectively.

General Motors (Ba2/ Stable) is the district's top taxpayer and employs approximately 1,200 - which is down from over 1,800 in 2009 as one of the plant's two shifts was eliminated. GM represented 2.6% of assessed valuation in 2010, far less than in recent years, representing the increasing diversity of the area's tax base. The Wentzville plant is the only GM plant to manufacture full-size, utility vans which may serve to insulate its operation from future downsizing. With production and employment increasing in recent months, a second shift may be added to local operations. We will continue to monitor the operations at the GM Wentzville plant for potential impact to the district's credit profile.

STABLE FINANCIAL PROFILE MARKED BY CONTINUED ADDITIONS TO RESERVES

The district's finances will likely remain sound due to conservative management practices, an expanding local tax base, and increased enrollment trends. The district concluded fiscal 2006 with a General Fund (General and Special Revenue Funds) balance of $5.2 million, or a below average 6.7% of General Fund revenues. In response to narrowed reserve levels, the district worked to deliberately rebuild reserves over subsequent fiscal years. A voter approved levy increase in 2004, the positive impact of sustained enrollment growth trends on per pupil state aid, and expenditure constraints enabled the district to record substantial operating surpluses of approximately $7 million, $5.5 million, and $5 million in fiscal 2007, 2008, and 2009, respectively. Audited results from fiscal 2010 show the continued trend of adding to General Fund reserves, with a $4.8 million operating surplus bringing the General Fund balance to $27.5 million, or a healthy 24.5% of revenues. The addition to reserves was both revenue and expenditure driven. Total revenues experienced a positive variance of $1.2 million as a result of conservative budgeting and enrollment estimates. Total expenditures experienced a significant positive budget-to-actual variance as a result of conservative budgeting and general cost containment initiatives. Instruction expenditures experienced a favorable $2.1 million variance, primarily as a result of management budgeting for instructional positions that were not filled. Additional positive variances were seen in the areas of facility operations and transportation.

For fiscal 2011, management initially expected a draw on reserves of $600,000. Based on unaudited figures, the district concluded with a more favorable $3.5 million operating surplus. As seen in recent years, the variance is driven by the district's continued enrollment growth and its positive impact on the state aid funding formula and Proposition C sales tax revenues. Additionally, expenditures across all departments finished 4% below budget due to cost containment initiatives. For fiscal 2012, management has budgeted for a $1 million operating deficit. While the district is expecting a 2% decline in Assessed Valuation, management has taken proactive steps in mitigating the impact by raising the district's tax levy to the statutory ceiling. Additionally, the draw on reserves takes into account conservative local and intergovernmental revenue projections.

The district will continue to face expenditure pressures normally associated with strong enrollment growth. Prior to the economic downturn, the district saw enrollment growth of 11% and higher on an annual basis. In light of the recent recession, enrollment has moderated to a still strong 6% average over the past five years. Officials anticipate 500 new students each year over the near to mid-term. While slower residential development has modestly dampened the trend, enrollment growth is still projected to remain strong. Despite increased staffing and facility needs due to projected student growth, the district's sound financial operations will likely continue given prudent and forward-looking financial planning.

ABOVE AVERAGE DEBT BURDEN WITH ADDITIONAL BORROWING PLANNED

Moody's expects the district's above average debt burden (3.9% overall/3.5% direct) will increase over the near term due to the district's future borrowing plans, but remain manageable due to continued tax base growth. The current sale reflects the first of two $30 million issuances aimed at school and facility expansion initiatives. Management notes that the second issuance will take place in 2012. Amortization of the district's obligations is below average with 45% of principal retired within 10 years, but in line with the useful life of the assets being financed. All of the district's debt is fixed rate and there is no exposure to interest rate swap agreements.

WHAT COULD CHANGE THE RATING - UP

-Strengthening of the district's tax base and demographic profile

- Increase in reserves improving the General Fund balance above similarly rated entities

WHAT COULD CHANGE THE RATING - DOWN

-Structural imbalance and an inability to maintain reserves at satisfactory levels

- Fiscal and debt profile stress related to limited facility capacity

KEY STATISTICS

2000 population: 32,342 (+39% since 1990)

2010 Full Valuations: $6.6 billion

Total Full Value 5-Year Average Annual Change: 6.1%

Full Value Per Capita: $204,324

Fiscal 2010 General Fund Balance (General & Special Revenue Fund): $27.5 million (24.5% of revenues)

Direct Debt Burden: 3.5%

Overall Debt Burden: 3.9%

Principal Payout (10 years): 45%

2011 Enrollment: 12,631 students

Per Capita Income FY 1999: $24,090 (120.8% of MO; 111.6% of U.S.)

Median Family Income FY 1999: $63,063 (137.0% of MO; 126.0% of U.S.)

GO Debt Outstanding: $199.9 million

Appropriation Debt Outstanding: $30.7 million

The principal methodology used in this rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in October 2004. Please see the Credit Policy page on www.moodys.com for a copy of this methodology .

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: : parties involved in the ratings, [and] parties not involved in the ratings, [and]public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Mark G. Lazarus
Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA

CORRECTION TO TEXT, JULY 13, 2011 RELEASE: MOODY'S ASSIGNS Aa3 RATING TO WENTZVILLE R-IV SCHOOL DISTRICT'S (MO) $30.7 MILLION LEASE PARTICIPATION CERTIFICATES, SERIES 2011
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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