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MOODY'S ASSIGNS Aa2 RATING TO LOS ALAMITOS USD SFID NO.1, CA, 2011 BOND ANTICIPATION NOTES; $18.5 MILLION IN DEBT AFFECTED

04 Aug 2011

Aa2 RATING AFFIRMED ON OUTSTANDING $50.0 MILLION IN G.O. DEBT

Los Alamitos Unif. Sch. Dist. SFID 1, CA
Primary & Secondary Education
CA

Moody's Rating

ISSUE

RATING

2011 General Obligation Bond Anticipation Note

Aa2

  Sale Amount

$18,500,000

  Expected Sale Date

07/29/11

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Aug 4, 2011 -- Moody's Investors Service has assigned an Aa2 rating to Los Alamitos Unified School District (USD) School Facilities Improvement District's (SFID) 2011 General Obligation Bond Anticipation Notes for $18.5 million. The notes are secured by the proceeds of general obligation bonds which are anticipated to be sold prior to note maturity in 2016. Proceeds from the current offering will fund modernization projects at existing school sites. At the same time, Moody's affirms the Aa2 rating on the district's outstanding GO bonds totaling approximately $50 million in par outstanding.

RATINGS RATIONALE

Key considerations for the Aa2 rating include the district's moderate-sized stable tax base, relatively above-average socioeconomic profile, exceptional fiscal management and financial strength, and low debt burdens.

STRENGTHS

- Exceptional general fund reserves and strong liquidity

-Proactive fiscal management

- Return of moderate tax base growth after modest contraction in 2010

CHALLENGES

- Relatively small tax base for rating level

- Uncertainty in state education funding in fiscal 2012

DETAILED CREDIT DISCUSSION

RESIDENTIAL BUILT-OUT TAX BASE EXPERIENCES MODERATE ASSESSED VALUATION GROWTH IN 2011

The Los Alamitos Unified School District serves residents in the cities of Los Alamitos, Seal Beach, Cypress, and unincorporated Orange County (GO rating Aa1 with stable outlook) approximately 10 miles south of Los Angeles. SFID No. 1 encompasses approximately 91% of the assessed value (AV) of the total district. The SFID does not include the Leisure World senior citizens community, which represents 9% of the district's total AV. The mostly residential, built-out tax base declined in 2010 by 2%, a modest reduction typical of most school districts in Orange County. Moody's believes the contraction was due to downward reassessments applied to residential properties purchased from 2005 through 2008. Recent data shows improvement in the tax base and housing market; the district's AV grew by 3.2% in 2011. AV growth will result to the extent that the aggregate increase in AV from homes sold with lower-than-market-value AVs offset any aggregate decline from revalued properties. The December 2010 median resale price of single-family homes in Los Alamitos was $564,500 and the fiscal 2011 median AV of single-family homes located within the district is approximately $355,511. Given the disparity between assessed values and current market values, it is very likely near-term AV growth will continue to be supported by property turnover.

The district benefits from its favorable location within the Los Angeles metropolitan area economy, including its proximity to various transportation corridors. District-wide median family and per capita incomes were significantly above the state level (140.4% and 146.3% respectively as of the 2000 census). Moody's notes that Orange County's unemployment rate declined to 8.5% in May 2011, and remains well below the state unemployment rate of 11.4% in May, a notable credit strength.

EXCEPTIONAL LEVEL OF RESERVES AS A RESULT OF PROACTIVE MANAGEMENT PROVIDE NEAR-TERM CUSHION AGAINST UNCERTAINTY IN STATE EDUCATION FUNDING

The district's financial operations are well-positioned to manage the impact of lower state education funding. The district's balance sheet was strong leading up to the downturn in state education funding; the fiscal 2009 unreserved ending general fund balance was $19.9 million (or 24.8% of 2009 revenues). Including a special reserve fund which held approximately $4.2 million in unrestricted funds at fiscal year-end 2009, the district's available fund balance was a strong $24.1 million (or 30.0% of 2009 revenues). Despite a sizable cut in state education funding in fiscal 2010, the district was able to generate an operating surplus of $2.8 million through the receipt of federal stimulus funds and implementation of expenditure cuts, which included the approved use of 2 furlough days and reductions in staff. The district also drew down approximately $500,000 from its special reserve fund. For fiscal 2011, the district estimates year-end unreserved general fund balance increased to $30.1 million (or 35.9% of 2011 revenues), as a result of continued furlough savings and the final year of federal stimulus aid.

District officials budgeted to drawdown fund balance for fiscal 2012, conservatively budgeting for a loss of $3.0 million in revenue despite flat state funding, based on the governor's May budget proposal for decreased per pupil funding in the event of a failed state tax extension. Budgeted unreserved general fund balance would still be in a strong position ending at $27.6 million (or 40.4% of projected 2012 revenues). The district plans a drawdown in its special reserve fund by $550,000 in addition to a $2.5 million drawdown in the general fund to offset the budgeted revenue reduction while protecting the quality of its educational programs. Together, the total ending available balance would remain strong at $29.8 million (or 43.7% of revenues), significantly above the 15.7% median for similarly-rated California school districts. Given the exceptional reserve levels maintained to date and proactive management action to initiate expenditure cuts, Moody's expects that the district's reserve levels over the long-term will remain comparatively strong.

LOW DEBT LEVELS; ANTICIPATED TAKE-OUT FINANCING DOES NOT REQUIRE ADDITIONAL GROWTH

The notes are secured by the proceeds of an anticipated sale of general obligation bonds. The district covenants that it will sell general obligation bonds and the notes have first claim on the proceeds. The district expects to price and close the sale of the take-out bonds slightly less than 90 days prior to the note's maturity in September 2016. This should provide ample time to adjust to any unexpected contingencies. Proceeds from the notes will finance modernization projects at existing school sites. The district has $76.0 million in authorized but unissued general obligation bonds from the 2008 election. The district does currently have the capacity to issue the bonds under the legal limit of $60.00 per $1,000, and AV would have to decline by approximately 35% by the note maturity date in order to exceed this rate. The district has chosen to issue notes at this time in order to maintain the tax rate promised to voters in the authorization.

The district's enrollment has experienced slow growth over the last five years so future capital needs are likely to focus on the maintenance of existing facilities. The district is projecting AV growth of 1.0% in 2012, 2.0% in 2013, 3.0% in 2014, and 4.5% from 2015 through maturity, with escalating debt service that is consistent with the assumptions. Escalating debt service is not a conservative structure relative to GO bond issuances nation-wide, which typically assume no growth with level tax rates. The district is assuming decreasing tax rates starting in 2017 after issuance of the bonds, maintaining a tax rate below the promised rate of $35.00 per $1,000. The district's direct debt burden post-issuance remains low at 1.0%, while the overall debt burden rises to 2.2%, which is still modest.

What could move the rating-UP

- Attainment of Basic Aid status

- Sizable increase in assessed valuation

- Substantial improvement in socioeconomic measures

What could move the rating-DOWN

- Significant deterioration in socioeconomic measures

- Protracted decline in assessed valuation

- Substantial weakening in the district's financial position

KEY STATISTICS

SFID No. 1 Assessed Value, Fiscal 2011: $7.0 billion

Average annual growth, assessed value, 2006-2011: 5.4%

Median family income, 2000 census (entire district): $74,725 (140.4% of state)

Per capita income, 2000 census (entire district): $33,224 (146.3% of state)

General Fund balance, Fiscal 2010: $26.8 million (37.5% of GF revenue)

Unreserved General Fund balance, Fiscal 2010: $25.7 million (35.9% of GF revenue)

Total Available Fund balance, Fiscal 2010: $29.4 million (41.1% of GF revenue)

Estimated Available Fund balance, Fiscal 2011: $30.7 million (42.5% of GF revenue)

Average daily attendance, Fiscal 2010: 9,252

Direct debt burden: 1.0%

Overall debt burden: 2.2%

Payout of principal (10 years): 23.9%

The principal methodology used in this rating was Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007. 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 credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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

Andrea Unsworth
Analyst
Public Finance Group
Moody's Investors Service

Michael Wertz
Backup Analyst
Public Finance Group
Moody's Investors Service

Eric Hoffmann
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 Aa2 RATING TO LOS ALAMITOS USD SFID NO.1, CA, 2011 BOND ANTICIPATION NOTES; $18.5 MILLION IN DEBT AFFECTED
No Related Data.
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