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MOODY'S ASSIGNS Aa1 ENHANCED RATING WITH A NEGATIVE OUTLOOK AND Aa1 UNDERLYING RATINGS TO GREENVILLE COUNTY SCHOOL DISTRICT'S (SC) $78.6 MILLION GENERAL OBLIGATION BONDS, SERIES 2011

13 Sep 2011

Aa1 RATING APPLIES TO $120.4 MILLION IN PARITY DEBT, INCLUDING THE CURRENT OFFERING

Primary & Secondary Education
SC

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

General Obligation Bonds, Series 2011

Aa1

Aa1

  Sale Amount

$78,625,000

  Expected Sale Date

09/14/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Sep 13, 2011 -- Moody's Investors Service has assigned a Aa1 enhanced rating with a negative outlook and a Aa1 underlying rating to Greenville County School District's (SC) $78.6 million General Obligation Bonds, Series 2011. Concurrently, Moody's has affirmed the Aa1 underlying rating on $47.8 million of outstanding general obligation debt and the Aa2 rating on $1.08 billion of installment purchase debt issued through the BEST (Building Equity Sooner for Tomorrow) program. The bonds are secured by the district's unlimited ad valorem tax pledge.

SUMMARY RATINGS RATIONALE

The Aa1 underlying rating reflects the district's position as a regional economic and employment hub, the long-term maintenance of a satisfactory financial position, and a highly-leveraged direct debt burden with relatively slow principal retirement. Bond proceeds will finance the annual payment of the district's installment purchase debt and various maintenance and capital projects.

The Aa1 enhanced rating is based on the additional security provided by the South Carolina School District Credit Enhancement Program (SCSDCEP). The program assures timely debt service payment through county and state government coordination and is backed by sizable annual state appropriations under the state's Education Finance Act. As the SCSDCEP is a state-backed enhancement program, the program's rating shadows the state's rating and consequently carries the negative outlook that is assigned to the state's Aaa general obligation rating. For more information on Moody's intercept program rating methodology, please refer to the "State Aid Intercept Programs and Financings, Part I" published on February 29, 2008.

STRENGTHS

-Sound fund balance reserves, bolstered by formal fiscal policies

-Diverse, large tax base that serves as an economic and employment hub for the region

CHALLENGES

-Above average debt burden and slow amortization

GREENVILLE COUNTY PROVIDES MECHANICS FOR PAYMENT OF ANNUAL DEBT SERVICE

In accordance with state law, Greenville County (G.O. rated Aaa) performs property tax assessments, collects the district's debt service levies, holds sinking funds and makes debt service payments to the trustee. The county treasurer also is responsible for notifying the state treasurer in the event of an insufficiency in the district's debt service fund, in order to trigger the state's intercept of EFA funds under the SCSDCEP. The school district's rating is reflective of its limited authority to raise its operating millage rate, a financial position that while satisfactory is well below that of the county, and its highly-leveraged direct debt burden.

MOODY'S EVALUATES THE IMPACT OF PROPERTY TAX REFORM LEGISLATION

On June 10, 2006, the governor of South Carolina signed a property tax reform bill (Act 388) that exempts all owner-occupied residential property from ad valorem taxation to fund school district operations and replaces this funding source with an additional one-cent statewide sales tax. The legislation limits growth in this revenue source, as well as increases in the operating millage levied on non-exempt property, to a factor incorporating the increase in the southeast CPI and growth in population. In addition, on November 7, 2006 voters approved a limit on growth in assessed valuation of property attributable to periodic revaluation to not more than 15% within a five year period, unless a transfer of interest has occurred.

In light of this legislation, which significantly alters the revenue structure for school districts, Moody's assigned a negative outlook to the South Carolina School District sector (see Moody's Special Comment published July 7, 2006). This global sector outlook does not impact the ratings of individual school districts. Moody's will continue to monitor the impact of this legislation on school district credit quality, particularly in light of our methodology for rating South Carolina school districts, which gives considerable weight to operating autonomy as a key element of financial flexibility.

LARGE AND DIVERSE TAX BASE AT CENTER OF REGIONALLY-IMPORTANT ECONOMY

Located along the Interstate 85 corridor in the upstate region of South Carolina (G.O. rated Aaa/negative outlook), Greenville County serves as the economic and employment hub of the larger multi-county region, with a mature and diverse tax base that includes manufacturing, education, and services industries. The school district encompasses the county (97% of district's tax base) and segments of adjoining Laurens County (G.O. rated A1) and Spartanburg County (G.O. rated Aa3). The assessed valuation of the district has increased by 39% during the past five years, including 5.2% growth with reassessment in fiscal 2011. The full market value of the tax base reached a substantial $37.2 billion as of fiscal 2011. Going forward, the district conservatively estimates 1% growth annually. Student enrollment has increased by 18% since 2000, in line with countywide population growth of 18.9% for the same period, and the district expects to add 450 students (0.6% growth) for the current school year, signaling a shift from recent average growth of 2% annually. The local economy is dominated by the advanced manufacturing and automotive manufacturing sectors and Moody's Economy.com reports that the Greenville region began to experience recessionary contraction during the second half of 2008. The Greenville region continues to serves as a key economic center to the state, supported by expanding education and research and development sectors, and Greenville County alone comprises roughly 10% of the statewide population. The county's June 2011 jobless rate of 9.4% is in line with the national rate. Wealth indicators are strong relative to the state, with 1999 per capita income (U.S. Census) equal to 116% and 2009 per capita personal income (U.S. Bureau of Economic Analysis) equal to 110.6% of statewide levels.

FINANCIAL POSITION EXPECTED TO REMAIN SATISFACTORY

Moody's expects the district to continue to maintain a satisfactory financial position given management's conservative budgeting practices and reserve policy requirements. The district's formally-adopted financial policy requires the maintenance of unreserved General Fund balance at a minimum 8.3% of the current year's budget, strengthened from a prior 5% level in fiscal 2007. The district has remained solidly above the revised requirement over the last five years ending fiscal 2010, with unreserved fund balance equal to an average 12.2% of annual revenues. The district maintained sound fund balance levels in fiscal 2010 due to a $3.6 million surplus, despite a midyear $39 million state aid cut. The district was able to offset a significant portion of the revenue decline though conservative budgeting and midyear expenditure reductions including a hiring freeze, cuts in maintenance and a hold-back of 20% of non-personnel budget appropriations. Based on preliminary operating results for fiscal 2011, officials plan to increase General Fund balance by $20 million to $72 million, or solid 17.7% of projected revenues. The surplus was largely driven by the transfer of expenditures to several special revenue funds, as well as conservative budgeting.

The adopted fiscal 2012 budget represents a 9% increase relative to the prior year's budget due to the addition of 109 new teachers, which is a return to staffing levels from 2008, and a step increase for teachers. The budget is balanced with $16.7 million fund balance appropriation and a $13 million increase in state aid due to a change in base student costs. The budget also includes a 3.8 mill increase in the district's operating tax rate, which is 1 mill above the maximum increase allowed under Act 388 due to recent legislation that allows districts to access unused levy capacity from the prior three fiscal years given Board approval. While officials expect to replenish a portion of appropriated fund balance, Moody's notes that the planned use of fund balance is a notable shift from historical practice. Future rating review will incorporate the district's ability to return to structural balance, which officials plan to do in fiscal 2013.

MANAGEABLE DEBT POSITION DESPITE ABOVE-AVERAGE DEBT BURDEN AND SLOW PAYOUT OF PRINCIPAL

The district's debt position is characterized by an above-average debt burden and slow payout. From 2003 to 2006, the district issued approximately $1.8 billion in installment purchase revenue bonds through the BEST program, approximately $1.08 billion of which is outstanding at this time. The debt service on BEST bonds is paid from annual installment bonds issued and retired during the same year. While the district's direct debt burden, currently at 3.2% of full valuation, is above average for South Carolina school districts, Moody's believes that the district's ability to provide funding for a large portion of its medium-term capital needs with proceeds of the installment purchase revenue bonds somewhat offsets the elevated debt load. Payout of debt is slow, with 44.4% of principal repaid within 10 years, and debt service comprised a high 15.2% of fiscal 2010 operating costs. While the district's repayment schedule is well below average, total repayment is expected to remain under 25 years, within the life of the financed assets. Future debt plans include approximately $10 to $20 million in annual financing for capital maintenance.

WHAT COULD MOVE THE RATING UP:

-Increase in fund balance reserves

-Continued tax base growth

WHAT COULD MOVE THE RATING DOWN:

-Decline in fund balance reserves below formal policy level due to structural imbalance

-Increased debt burden

KEY STATISTICS

2010 estimated population (Greenville County): 451,225

FY 2011 full valuation: $38.2 billion

Full valuation per capita: $79,783

1999 Per Capita Income: $21,795 (116% of state; 101% of U.S.)

1999 Median Family Income: $49,940 (113% of state; 100% of U.S.)

June 2011 unemployment rate (Greenville County): 9.4%

FY 2010 General Fund balance: $52 million (12.8% of revenues)

Debt burden: 3.2%

Payout of principal (10 years): 44.4%

Post-issue G.O. debt outstanding: $120.4 million

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, 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 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.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Analysts

Lauren Von Bargen
Analyst
Public Finance Group
Moody's Investors Service

Robert Weber
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
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 Aa1 ENHANCED RATING WITH A NEGATIVE OUTLOOK AND Aa1 UNDERLYING RATINGS TO GREENVILLE COUNTY SCHOOL DISTRICT'S (SC) $78.6 MILLION GENERAL OBLIGATION BONDS, SERIES 2011
No Related Data.
© 2020 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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