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New Issue:

MOODY'S ASSIGNS Aa1 RATING TO SAN DIEGO CCD'S GENERAL OBLIGATION BONDS

29 Jun 2011

APPROXIMATELY $967 IN DEBT AFFECTED INCLUDING THE CURRENT ISSUE

Primary & Secondary Education
CA

Moody's Rating

ISSUE

RATING

General Obligation Bonds Series 2011

Aa1

  Sale Amount

$350,000,000

  Expected Sale Date

06/28/11

  Rating Description

General Obligation Bonds

 

Opinion

NEW YORK, Jun 29, 2011 -- Moody's Investors Service has assigned an Aa1 rating to the San Diego Community College District's 2011 General Obligation Bonds 2002 Election Series D and 2006 Election Series B. Moody's has also affirmed the existing underlying ratings on the district's other long-term debt.

RATING RATIONALE

The rating reflects the district's enormous tax base and solid resident wealth levels. The rating also incorporates the district's fiscal position, which has remained sound despite the recent challenges to the colleges revenue base in recent years. The district's debt levels are typical for a community college district. The bonds are secured by the district's unlimited property tax pledge.

STRENGTHS

-Exceptionally large tax base

-Experienced and strong management team

-Strong fiscal position

CHALLENGES

-Ongoing state funding pressure

-Local economy still impacted by recession

EXCEPTIONALLY LARGE AND DIVERSE SAN DIEGO AREA TAX BASE

The tax base securing the district's bonds is immense and totaled $134 billion in 2011, which is among the largest assessed valuations for a community college district nationwide. The district has absorbed modest declines in value each of the last two years. The largest decline was in 2011 but at just 1.86%, it was still minor. Given the size of the tax base, it is highly unlikely that the district will absorb declines significant enough to pressure the rating by this factor alone. The 2012 county -wide assessed valuation is preliminarily expected to increased to by approximately 1%, which could mirror the district's growth as well. As expected for such a large tax base, tax payer diversity is a credit strength. No single tax payer represents more than 0.94% of the total assessed valuation. The top 20 taxpayers are only 6.37% of the total, which is a level comparable for the top ten tax payers in many community college districts. The local employment base is similarly diverse and includes the institutional presence of U.S. Navy, which employs more than 55,000 people. Reflective of the diversity of employment opportunities in the area, both the county and city unemployment rates have remained better than the state mark during the recession.

HISTORICALLY STRONG FISCAL POSITION THAT SHOULD REMAIN SO THROUGH THE CURRENT PERIOD OF FISCAL STRESS

The district has consistently generated ending general fund balances that have been at or above the median for Moody's -rated community college districts. In fiscal 2010, the ending fund balance was a strong 20.8%; an improvement over the already robust 18.7% in the prior fiscal year. For 2011, the district anticipates level operations that may include a modest surplus in the general fund.

The district is budgeting for a very small 1% general fund deficit in fiscal 2012, which would bring the ending balance to 18% of fiscal 2011 revenues, which is still a very solid figure and will leave the district well positioned to manage challenges in fiscal 2013. The district has prepared for the uncertainty of the state budget impacts by identifying $10 million in various expenditure reductions that would include eliminating unfunded students, and continuing a hiring freeze. The district also maintains a substantial level of additional sources of liquidity that could be loaned to the general fund across fiscal years. Including these monies, the district's total projected ending fiscal 2012 fund balance rises to a very strong 30%. Labor contracts are largely settled through fiscal 2014. The agreements include a "trombone" clause, which takes effect July 1, 2011. The clause stipulates that in the event of a serious fiscal downturn, the unions must negotiate concessions with the district for a period no longer than 90 days. After that term, the district can unilaterally impose any changes to the labor agreements.

TYPICAL DEBT LEVELS DESPITE THE SIZE OF THE CURRENT ISSUE

The current sale will be approximately $350 million in general obligation bonds. Still, the direct debt levels will be typically sized at 0.7% of the total tax base. The debt per capita will be modest at approximately $738. The overall debt level of 2.6% is also standard for a Moody's-rated community college district. The current sale will continue the district's substantial capital improvement plan, which will make significant upgrades to virtually all of the district's facilities. At the concludion of the various construction projects, approximately 80% of the district's facilites will have a 50 life span. The district $498 million in remaining bond authorization though the schedule for issuance of these monies is not finalized. The debt service schedule for the current sale assumes 0% growth in the tax base in 2012 and a modest increase in 2013. The current sale also includes a refuding of the district's 2003A bonds for an estimated debt service savings of $1.2 million.

WHAT COULD CHANGE THE RATING -UP

-Significant and sustained socio-economic improvement

WHAT COULD CHANGE THE RATING-DOWN

-Unexpected and material declines in general fund reserves and cash

KEY STATISTICS

2011 Assessed Valuation: $134 billion

Fiscal 2010 general fund balance as a % of revenues: 19.5%

Projected fiscal 2011 general fund balance as a % of revenues :20%

Direct debt as a % of assessed value: 0.7%

Overall debt as a % of assessed value: 1.7%

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

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit 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

Michael Wertz
Analyst
Public Finance Group
Moody's Investors Service

Eric Hoffmann
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

MOODY'S ASSIGNS Aa1 RATING TO SAN DIEGO CCD'S GENERAL OBLIGATION BONDS
No Related Data.
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