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MOODY'S ASSIGNS AN INITIAL A3 UNDERLYING RATING AND Aa3 ENHANCED RATING WITH NEGATIVE OUTLOOK TO UNIONTOWN AREA SCHOOL DISTRICT'S (PA) $6 MILLION GENERAL OBLIGATION UNLIMITED TAX BONDS AND $3 MILLION GENERAL OBLIGATION UNLIMITED TAX NOTES; UNDERLYING OUT

07 Jul 2011

DOWNGRADES GENERAL OBLIGATION LIMITED TAX RATING TO Baa1 FROM A2, AFFECTING $16.7 MILLION IN OUTSTANDING DEBT

Primary & Secondary Education
PA

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series A of 2011

A3

  Sale Amount

$6,000,000

  Expected Sale Date

07/08/11

  Rating Description

General Obligation Bonds, Series A of 2011

 

General Obligation Notes, Series B of 2011

A3

  Sale Amount

$3,000,000

  Expected Sale Date

07/08/11

  Rating Description

General Obligation Notes, Series B of 2011

 

 
Moody's Outlook   Negative
 

Opinion

NEW YORK, Jul 7, 2011 -- Moody's Investors Service has assigned an initial A3 underlying rating and enhanced Aa3 rating with negative outlook to the Uniontown Area School District's (PA) $6 million General Obligation Bonds, Series A of 2011 and $3 million General Obligation Notes, Series B of 2011, both secured by a general obligation unlimited tax pledge. Concurrently, Moody's has downgraded the district's General Obligation Limited Tax rating to Baa1 from A2 affecting approximately $16.7 million in outstanding debt. The district's limited tax debt is subject to Special Session Act 1 property tax limitations. The negative outlook impacts both the limited and unlimited debt.

Proceeds from Series A will be used to refund $6M of the 2006 Series, while Series B will be used to refund $3 million of the 2005 and 2009 Series, for an estimated net present value loss of $27,040 or negative 0.03% of the refunded principal, without extension of maturity. The district will experience approximately $2.3 million of debt service savings during fiscal 2012.

RATING RATIONALE SUMMARY

The A3 unlimited tax rating and the downgrade to a Baa1 limited tax rating reflects the school district's weak financial position with a negative General Fund balance, above average debt burden, and relatively stable tax base.

The Aa3 enhanced rating is based upon the additional security for these bonds provided by the Commonwealth of Pennsylvania's Act 150 School District Intercept Program. The Act provides for undistributed state aid to be diverted to bond holders in the event of default. The timing of state aid payments relative to the timing of debt service payments is satisfactory for these bonds. The negative outlook reflects the Commonwealth of Pennsylvania's negative outlook as the programmatic intercept rating is linked to the commonwealth's rating.

The negative outlook applied to the district's underlying creditworthiness reflects Moody's belief that the district's financial position will continue to be challenged given negative reserve levels and increasing fixed expenditures that limit financial flexibility, despite the potential for the district to return to a positive fund balance position by fiscal 2012 year-end. Over the near-term, Moody's will monitor the district's ability to stabilize the currently narrow financial position, return to structural balance and replenish its reserves to historically more adequate levels.

STRENGTHS:

-Stable tax base

CHALLENGES:

- History of structural imbalance

- Negative reserve levels

- Above-average debt burden

MODEST TAX BASE EXPECTED TO REMAIN STABLE

Moody's expects the district's rural $860 million tax base will remain stable given availability of land for additional future development. Located in Fayette County, 25 miles northeast of the City of Morgantown (W.V.), the school district is primarily residential with a significant agricultural base. Assessed valuation growth has remained modest, averaging 0.9% annually between 2006 and 2010, reflecting the rural tax base. Moving forward, the district anticipates an increase in tax base due to the recent approval of a casino license for the district's largest taxpayer, a resort facility currently representing 4.3% of assessed valuation. In addition, with the growing Marcellus Shale gas industry in nearby Morgantown, WV supporting high-paying job creation and the construction of a new highway to reduce commuting congestion, the district is anticipating an increase in assessed valuations, as well as wage tax revenues going forward. Wealth indices are well below state and national averages, with full value per capita at $35,895 (40% the nation and 43% the state). The current unemployment level of 8.5%, as of April 2011, exceeds the state median of 7.1%, but falls slightly below the national median of 8.7%.

RECURRING OPERATING DEFICITS DRIVE NEGATIVE GENERAL FUND BALANCE

The district will continue to remain challenged, given narrow reserves levels and increasing fixed expenditures that further limit its financial flexibility. During four of the previous five years, the General Fund has resulted in operating deficits totaling $6.8 million which have materially eroded the district's financial position, leading to a negative General Fund balance in fiscal 2009. The General Fund balance has deteriorated to a negative $1.8 million (-4.7% of General Fund revenues) in fiscal 2010 from a more adequate $4.4 million in fiscal 2007 (11.7% of General Fund revenues).

Fiscal 2009 was the first year that the General Fund balance ended in a negative position (-$997,000 or -2.6% of General Fund revenues) driven by a $3.2 million deficit. This deficit resulted from both a budgeted General Fund balance draw of $3 million and poor budgeting of local revenues. Fiscal 2010 (unaudited) ended with another sizeable $3.3 million deficit, decreasing General Fund balance to a negative $1.8 million (-4.7% of General Fund revenues). While the district originally anticipated the potential elimination of its negative General Fund balance due to an effort to reduce expenditures, continued aggressive budgeting of revenues, particularly related to state aid, drove the resulting deficit causing reserve levels to decrease even further. Moody's will continue to monitor the status of the fiscal 2010 Audit results, which has not yet been released due outstanding accounting disagreements between the local auditor and the district. District revenues are derived from state aid (61%) and local taxes (34%), with tax collections coming in below average at 90%, on a current year basis.

Fiscal 2011 year-end projections indicate balanced operations with an anticipated operating surplus of approximately $300,000, General Fund balance is projected to improve slightly to a negative $1.5 million (-3.6% of General Fund revenues). This surplus is the result of a 6.4% tax rate increase, as well as continued expenditure savings through the implementation of a hiring freeze and furloughs. The fiscal 2012 budget increased 3.2% from fiscal 2011 and did not include a fund balance appropriation. The district is expected to return to positive fund balance as a result of continued expenditure cuts, more conservative budgeting of state revenues. Although unbudgeted, the debt service savings achieved through this financing will help improve the district reserve position. Further rating reviews will reflect the district's ability to manage potential expenditure increases and/or revenue declines and return to and maintain structurally balanced financial operations.

ABOVE AVERAGE DEBT BURDEN WITH SLOW PAYOUT

Moody's expects the district's debt burden will remain elevated in the long term given the currently high debt burden and slow amortization of principal. The rate of amortization of principal is below average at 30.6% of principal repaid in 10 years. The district's direct debt burden is a high 9.6% of full valuation, when compared to state and national averages of 2.5% and 1.4%, respectively. The district's overall debt burden grows to an even higher 11% of full valuation when incorporating county and municipal debt. Since the district is at the end of its current capital improvement plan, with all schools having either been recently constructed or renovated, the district does not anticipate any additional long-term borrowing in the medium-term. Debt service accounts for approximately 10% of 2010 expenditures. The district does not have any variable rate debt outstanding and is not party to any derivative agreements.

WHAT COULD MAKE THE RATING GO UP:

- Significant increase in reserve levels eliminating negative General Fund balance

- Substantial increase in tax base and wealth levels

- Decreased debt burden

WHAT COULD MAKE THE RATING GO DOWN:

- Inability to return to and maintain structural balance

- Any additional deterioration of reserve levels

- Increased debt burden

- Fiscal 2010 audited results significantly different then current projections

KEY STATISTICS:

2010 Population: 23,820 (11.5% decrease since 2000)

2010 Full Valuation: $860 million

2010 Full Value Per Capita: $36,115

1999 PCI (as % of PA and US): $14,621 (70% and 67.7%)

1999 MFI (as % of PA and US): $33,750 (68.6% and 67.4%)

FY09 General Fund Balance: -$1 million (-2.6% of General Fund revenues)

FY10 General Fund Balance (unaudited) -$1.8 million (-4.7% of General Fund revenues)

Direct Debt Burden: 9.6%

Overall Debt Burden: 11%

Payout of Principal (10 years): 30.6%

Post-Refunding Debt Outstanding: $83 million (of which $16.7 million secured by limited tax pledge)

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. 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 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

Jennifer Rinaca
Analyst
Public Finance Group
Moody's Investors Service

Jessica A. Lamendola
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Senior Credit Officer
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

MOODY'S ASSIGNS AN INITIAL A3 UNDERLYING RATING AND Aa3 ENHANCED RATING WITH NEGATIVE OUTLOOK TO UNIONTOWN AREA SCHOOL DISTRICT'S (PA) $6 MILLION GENERAL OBLIGATION UNLIMITED TAX BONDS AND $3 MILLION GENERAL OBLIGATION UNLIMITED TAX NOTES; UNDERLYING OUT
No Related Data.
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