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MOODY'S ASSIGNS Aa2 UNDERLYING RATING AND Aa1 ENHANCED RATING TO BARROW COUNTY SCHOOL DISTRICT'S (GA) $37.8 MILLION GENERAL OBLIGATION BONDS, SERIES 2010

26 Oct 2010

Aa2 RATING APPLIES TO $66 MILION IN G.O. DEBT OUTSTANDING, INCLUDING THE CURRENT ISSUE

Primary & Secondary Education
GA

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

General Obligation Bonds, Series 2010

Aa2

Aa1

  Sale Amount

$37,380,000

  Expected Sale Date

11/03/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Oct 26, 2010 -- Moody's Investors Service has assigned a Aa2 underlying and a Aa1 enhanced rating to Barrow County School District's (GA) $37.8 million General Obligation Bonds, Series 2010. Concurrently, Moody's has affirmed the Aa2 rating on $66 million of outstanding pre-refunding general obligation debt.

RATINGS RATIONALE

The bonds are secured by the district's unlimited ad valorem tax pledge. The underlying rating is based on the school system's primarily residential tax base that has continued to experience rapid growth, the maintenance of adequate reserves despite recent reductions in state aid, and a debt position increased substantially by the current issue. The rating is further supported by the expected payment of debt service from a separately voted 1% special purpose local option sales tax (SPLOST) and the short life of the bonds. Proceeds from this issue will fund several capital projects and refund a portion of the district's Series 2006 bonds.

The Aa1 enhanced rating is based on the additional security provided by the State of Georgia's (rated Aaa) School District Intercept Program, under which the State Board of Education can transfer state aid appropriated for each school district directly to the paying agent in case of debt service shortfalls. Pursuant to Section 20-2-480 of the Official Code of Georgia Annotated, the debt service paying agent must notify the State Board of Education 15 days prior to a debt service due date of any deficiency in the debt service fund. Upon notification, the State Board of Education is authorized to divert adequate funds from the district's remaining annual state appropriation and forward them to the debt service paying agent no less than two days prior to the debt service date. Prior to bond issuance, each district must notify the State Board of Education of the debt service amounts and dates, and authorize the Board to withhold aid in order to participate in the Intercept Program.

INTERCEPT PROGRAM STATUTORY REQUIREMENTS AND COVERAGE TEST PROVIDE MARGIN OF SECURITY

The Aa1 programmatic rating serves as a ceiling for enhanced ratings related to individual financings. Moody's assigns an enhanced rating to specific financings after an evaluation of the sufficiency of interceptable revenues as determined by specific coverage tests. The enhanced rating further considers the level of reliance on the final state aid payment, the timing of scheduled debt service payment dates as it relates to the state's fiscal year, the stability of state aid, and the priority of state aid payments, in addition to transaction structure, which considers the role of the independent fiduciary and any reserve fund. Financings that are considered average to strong in the majority of these areas will usually achieve the program-level rating, while financings with weaker scores may be rated one or more notches below the programmatic rating.

The Barrow County School System financing has a strong sufficiency of interceptable revenues and an average transaction structure, warranting the Aa1 programmatic rating. Moody's estimates that available state aid, based on fiscal 2010 state aid receipts ($50.9 million), would provide strong 2.94 times coverage for the system's maximum debt service payment ($5.8 million in February 2017). Under the stress-test scenario, which excludes the final month of state aid allocation, maximum debt service coverage remains solid at 2.21 times. The system's August 1 interest payment structure could be considered weak, being only one month into the state's June 30 fiscal year when a delay in the state's budget adoption could affect appropriations, but it is mitigated by the state's history of adopting budgets before the beginning of the fiscal year. The district's transaction structure favorably includes the use of a paying agent, which offers average strength given the timely notification requirements established in the bond resolution whereby the paying agent must notify the BOE of a deficiency 15 days prior to the debt service due date. Lastly, while the school system has a history of annual state aid cuts from fiscal year 2009 and 2010 (averaging 8.8% annually), due to a decrease in per pupil allocation, maximum debt service coverage ratio assuming a one year loss in funding decline equal to the three year aggregate loss, equals a still-ample 2.43 times.

LOCAL ECONOMY AND TAX BASE EXPANDING WITH RESIDENTIAL DEVELOPMENT

Located approximately 45 miles northeast of the City of Atlanta (G.O. rated Aa2/negative outlook) along Interstate 85, Barrow County School District has experienced significant residential and commercial development that is transforming the economy away from its traditional agricultural and manufacturing base. The county has seen its population increase 56% from 2000 to an estimated 72,158 in 2009. The district's ad valorem tax base has grown at an average annual rate of 6.8% over the past five years to an estimated $5.7 billion in fiscal 2010 (tax year 2009), which includes a 5.7% decline in fiscal 2010 due to the effect of Act 163 (House Bill 233) and Senate Bill 55. Act 163 (House Bill 233), approved by the General Assembly during the 2009 legislative session, establishes a three-year moratorium on growth during which time no increase in assessed value of real property (tax years 2009-2011) is permitted. The law specifically allows assessed values to decline, a factor that is compounded by separate legislation (Senate Bill 55) requiring foreclosures to be counted as fair market sales for property reappraisal beginning with tax year 2009. Due to the legislation, officials are projecting a 10% decline in tax base in fiscal 2011. While new development has slowed in the current recession, officials report that a new biomedical campus and a training headquarters for the US Army Core of Engineers are expected to open in the near term. Wealth indicators are below state and national levels. The district's 1999 per capita income stood at just 86.7% of the State of Georgia (G.O. rated Aaa) average, while 2008 per capita personal income of $27,357 was just 78.5% of the state mean. The district's August 2010 unemployment rate of 10.3% is in line with the state average for the same period.

STRONG FINANCIAL OPERATIONS STRENGTHEN CREDIT QUALITY

Moody's expects the district's financial position to remain healthy, given management's conservative budgeting practices and sound reserve levels, despite state aid cuts. Due to surpluses in four out of the last five fiscal years, the district's General Fund balance increased to $11.8 million (10.7% of revenues) in fiscal 2009 from $7.4 million (8.7% of revenues) in fiscal 2005. In fiscal 2009, the district reported a surplus of $1.6 million, despite a midyear state aid cut of $4 million, driven by conservative budgeting for revenues and approximately $5 million in expenditure savings. Significantly, the district maintains a capital reserve for pay-go capital projects, which equaled $22 million, lending additional financial flexibility. Based on preliminary fiscal 2010 results, officials expect that significant expenditure savings, including 6 furlough days, and an increase in federal funds was able to offset a $5 million midyear state aid cut. General Fund balance is expected to increase slightly to $12.7 million at the close of the fiscal year, which will fulfill management's target to maintain fund balance equal to at least one month's worth of operating expenditures (8.3%). The fiscal 2011 budget represents an 8.5% decline in expenditures compared to the prior year's budget, which, along with a $1.6 million fund balance appropriation, is expected to mitigate a budgeted 10% digest decline.

The district relies heavily on state aid, which accounted for 46.9% of fiscal 2009 revenues. The district's second largest revenue source is property tax revenues (30.8% of revenues in fiscal 2009). Beginning with fiscal 2003, the State of Georgia annually has reduced school district funding on a per pupil basis. Revenue pressure resulting from the reduction in state aid is increased by the district's limited flexibility to raise property taxes, as the current ad valorem levy of 18.5 mills is 92.5% of the state ceiling of 20 mills for operations (debt service millage is unlimited). We believe that officials will continue to sufficiently manage through revenue reductions and maintain reserves and financial flexibility consistent with the current Aa2 rating.

DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE DUE TO USE OF SPLOST PROCEEDS

Moody's believes that the use of SPLOST revenues to meet debt service obligations strengthens the district's overall budgetary flexibility. The district's direct debt burden is average at 1.2% of full value and increases to 3.2% when debt of overlapping municipalities are included. Officials expect that all debt service on the current issue will be repaid from the district's SPLOST program. The current SPLOST program, which expires on September 30, 2011, has been renewed for another five year collection period, over which the district expects to collect $39 million, based on projections of 0% growth over 2010 collections. Amortization of outstanding debt is below average with 57.4% repaid within ten years. The district does not have any variable rate debt outstanding, nor is the district party to any swap agreements.

WHAT COULD MOVE THE RATING UP

-Continued tax base growth

-Increased reserve position

WHAT COULD MOVE THE RATING DOWN

-Deterioration of reserves

-Declines in tax base

KEY STATISTICS

2009 Population: 72,158

Debt Burden: 1.2%

Amortization of principal (10 years): 57.4%

FY 2010 Full Valuation: $5.7 billion

Full Value per Capita: $79,572

FY 2009 General Fund Balance: $11.8 million (10.7% of General Fund revenues)

FY 2010 General Fund Balance (unaudited): $12.7 million (11.7% of General Fund revenues)

1999 Per Capita Income (as a % of state and of nation): $18,350 (86.7%, 85%)

1999 Median Family Income (as a % of state and of nation): $49,722 (100.9%, 99.4%)

Unemployment rate (August 2010): 10.3%

Post-sale parity debt outstanding: $66 million

The principal methodology used in rating Barrow County School District (GA) was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public 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

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

Cesar Avila
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
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 UNDERLYING RATING AND Aa1 ENHANCED RATING TO BARROW COUNTY SCHOOL DISTRICT'S (GA) $37.8 MILLION GENERAL OBLIGATION BONDS, SERIES 2010
No Related Data.
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