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New Issue:

MOODY'S ASSIGNS A1 RATING TO THREE RIVERS LOCAL SCHOOL DISTRICT'S $2.4 MILLION CERTIFICATES OF PARTICIPATION

15 Aug 2011

AFFIRMS Aa3 RATING ON $37.1 MILLION OF OUTSTANDING GOULT DEBT

Primary & Secondary Education
OH

Moody's Rating

ISSUE

RATING

Certificates of Participation

A1

  Sale Amount

$2,400,000

  Expected Sale Date

08/18/11

  Rating Description

Certificates of Participation

 

Opinion

NEW YORK, Aug 15, 2011 -- Moody's Investors Service has assigned an A1 rating to Three River Local School District's (OH) $2.4 million Certificates of Participation. Concurrently, Moody's has affirmed the Aa3 rating on the district's outstanding general obligation unlimited tax debt, affecting $37.1 million.

SUMMARY RATINGS RATIONALE

The certificates of participation (COPs) are secured by lease payments made by the district, subject to annual appropriation. Proceeds of the certificates will be used primarily for the construction and installation of a geothermal heating system at the site of the district's new pre-K through 12th grade school facility, as well as a new bus garage. Affirmation of the Aa3 general obligation rating reflects the district's moderately-sized tax base in the Cincinnati (GO rated Aa1/stable outlook) metropolitan area; solid financial operations with healthy reserves; and above debt burden with slow principal amortization. The A1 COPs rating incorporates satisfactory legal provisions and the essentiality of the financed projects, offset by the risk of non-appropriation.

STRENGTHS

-Solid financial operations characterized by conservative budgeting practices and healthy reserves

-Stabilized tax base with above average income indices

CHALLENGES

-Voter approval required for levy renewal

-Property tax appeal by largest taxpayer

ESSENTIAL PURPOSE; SATISFACTORY SECURITY FOR CERTIFICATE HOLDERS

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 rental payments on the certificates. The new facility will replace all of the district's buildings and will serve as the district's only academic facility beginning in the fall of 2013. The current offering is secured by the base rent payments made by the school district under the lease. The lease is annually renewable by district appropriation. The first lease term begins in August 2011 and will terminate on June 1, 2031, with subsequent terms renewable at the start of each fiscal year (July 1). The district's budget process typically entails a temporary annual budgetary appropriation approved by July 1st of the current fiscal year with a permanent appropriation authorized by October 1st. The district expects to appropriate lease payments from its General Fund, although officials expect the cost savings generated from the installation of the geothermal system will be sufficient to cover lease payments. Maximum annual debt service (MADS) on the COPs is approximately $182,000. Lease payments are due on June 1st and December 1st. The trustee (U.S. Bank National Association, long-term rating Aa2/negative outlook) is assigned a leasehold interest in the financed project and has the right to take possession of or re-let the facility upon default or non-renewal of the lease. The board of education has expressed its intent to continue to appropriate lease payments through final maturity, which is expected to be in 2031. The ground lease extends five years beyond the final maturity, ending in 2036.

MODERATELY-SIZED TAX BASE IN CINCINNATI METROPOLITAN AREA

Located in southwestern Ohio (Aa1/negative outlook) near the Indiana and Kentucky borders, the district sits at the intersection of three rivers and covers Miami Township and the villages of Addyston, Cleves, and North Bend. The district's moderately-sized $1.1 billion tax base is expected to continue to see modest growth due to its favorable location 15 miles from downtown Cincinnati and 20 miles from the Cincinnati-Northern Kentucky airport. Residents benefit from employment opportunities throughout the Cincinnati metropolitan area. The property tax base exhibits some concentration with Duke Energy Ohio (senior unsecured debt Baa1/stable outlook), an electric and gas utility in southwestern Ohio, representing 12.9% of the tax base. Officials report that Duke has appealed its valuation, and the appeal is currently being evaluated by the state Board of Appeals. Favorably, district management has reserved any disputed revenues received from Duke and has taken a conservative approach by assuming Duke will win its appeal in its financial forecast.

Hamilton County's (Aa2/stable outlook) unemployment rate (9.1% in June 2011) mirrors the nation (9.3%) and the state (9.2%) for the same time period. Favorably, the district's income indices are above state and national medians with per capita and median family income at 108% and 123% of U.S. levels, respectively, in the 2000 census. District enrollment declined by 3.3% in 2011 to around 1,900 students. Officials project future enrollment will remain at approximately the same level.

SOLID FINANCIAL OPERATIONS WITH HEALTHY RESERVES

The district's financial operations are expected to remain sound despite a fiscal 2010 operating deficit given its strong reserve levels and positive budget variances. The district ended fiscal 2009 with reserves totaling $8.4 million on a GAAP basis, or a healthy 43% of revenues. On a cash basis, the year ended with $8.8 million, or 42% of receipts. On a cash basis, the district ended fiscal 2010 with a $1.3 million operating deficit and an ending fund balance of $7.5 million, or a still solid 34.5% of receipts. While the district's five year forecast from May 2011 shows a modest $720,000 deficit, officials indicate that the district finished the year with a positive variance of approximately $1 million in comparison to the forecast. While the district is currently updating its forecast, the district preliminarily estimates its fiscal year end General Fund cash balance at $7.97 million, or approximately 36.9% of revenues.

Looking ahead to fiscal 2012, the district has implemented expenditure controls through salary and benefit concessions from employees in new labor contracts which are anticipated to significantly mitigate forthcoming revenue reductions attributable to intergovernmental revenues and the phase out of tangible personal property and public utility payments. Typical of many Ohio school districts, the district's cash reserves fluctuate with the levy cycle. The district's five-year forecast currently shows a positive fund balance through fiscal 2013, at which time the district will need to return to voters for additional operating funds or enact expenditure reductions to prevent a deficit General Fund cash position by 2014. Officials indicate that the district intends to seek a three-year renewal of a 4.95 mill operating levy in November of 2011, and will evaluate further revenue needs after consolidating operations into the new facility. The district maintains an informal cash carryover policy to maintain 30 to 45 days of cash on hand, a level it currently exceeds. The district treasurer is employed as a shared treasurer with another area school district.

ABOVE AVERAGE DIRECT DEBT BURDEN WITH NO FUTURE BORROWING EXPECTED

We expect the district's above average direct debt burden of 3.5% of full value (3.8% overall) to remain manageable due to a lack of future borrowing plans. Principal retirement is very slow, with 25.1% repaid in ten years, though it matches the useful life of the assets being financed. The current issuance will provide for the installation of a geothermal heating system at the district's new academic facility, which will replace all of the district's buildings. No additional borrowing is expected in the medium term. All of the district's debt is fixed rate, and the district is not a party to any interest rate swap agreements.

WHAT COULD CHANGE THE RATING - UP

-Maintenance or improvement of liquidity and fund balance levels through demonstrated ability to secure revenue enhancements from voters/and or use of expenditure adjustments as needed

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

WHAT COULD CHANGE THE RATING - DOWN

-Material declines in fund balance and liquidity levels

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

KEY STATISTICS:

Fiscal 2011 Enrollment: 1,904 students (0.5% average annual decrease since 2006)

2000 Population: 13,565 (15% increase since 1990)

2010 Estimated full market valuation: $1.1 billion (0.5% average annual decrease since 2005)

Estimated full value per capita: $71,561

Per capita income as % of U.S. (1999): 108.4%

Median family income as % of U.S. (1999): 122.9%

Hamilton County unemployment rate (June 2011): 9.1%

FY 2010 General Fund balance (GAAP basis): $9.4 million (42.8% of revenues)

FY 2010 General Fund balance (Five Year Forecast cash basis): $7.5 million (34.5% of revenues)

Debt burden: 3.5% (3.8% direct)

Principal retirement (10 years): 25.1%

Post-sale general obligation unlimited tax debt: $37.1 million

PRINCIPAL METHODOLOGY

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, parties not involved in the ratings, 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 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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.

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Analysts

Thomas Aaron
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


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MOODY'S ASSIGNS A1 RATING TO THREE RIVERS LOCAL SCHOOL DISTRICT'S $2.4 MILLION CERTIFICATES OF PARTICIPATION
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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