MOODY'S AFFIRMS Aa2 RATING ON $199.9 MILLION OF OUTSTANDING GOULT DEBT
Primary & Secondary Education
Lease Participation Certificates, Series 2011
Expected Sale Date
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.
- Large full valuation
- Strong socioeconomic indices
- Healthy financial reserves
- Consistent growth in student enrollment
- 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
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
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
WHAT COULD CHANGE THE RATING - DOWN
-Structural imbalance and an inability to maintain reserves at satisfactory
- Fiscal and debt profile stress related to limited facility capacity
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.
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Mark G. Lazarus
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
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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
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