New York, March 28, 2012 --
Moody's Rating
Issue: School Building Refunding Revenue Bonds, Series 2012;
Enhanced Rating: Aa3; Sale Amount: $4,680,000;
Expected Sale Date: 03/29/2012; Rating Description: Lease
Rental: Appropriation
Opinion
Moody's Investors Service has assigned a Aa3 enhanced rating (KSDE) with
a negative outlook to Bardstown (KY) Independent School District Finance
Corporation's $4.68 million School Building Refunding Revenue
Bonds, Series 2012. Proceeds of the sale with be used to
refund certain maturities of the corporation's Series 2004,
Series 2004B, and Series 2004C bonds for a net present value savings.
RATINGS RATIONALE
The rating reflects Moody's assessment of the additional security provided
by the Kentucky School District Enhancement Program (KSDE). The
negative outlook on the enhanced rating reflects the negative outlook
on the commonwealth's long term rating.
The KSDE program demonstrates generally average to strong state commitment
and program history as defined by the first factor of the intercept methodology
published February 2008. The funds available for intercept include
any unexpended General Fund amounts appropriated by the commonwealth and
allotted to the school district for the current biennium and allotments
to be made to the local school district in future budget bills.
The ability to advance funds crosses fiscal years and thus we do not focus
on current year coverage levels.
State oversight of the program is strong as school district operating
budgets, long-term facilities plans and debt issuances must
be reviewed and approved by the state Department of Education (DOE).
The state's oversight is further reflected in the DOE's ability to access
school district financials on a real time basis and a track record of
state intervention in under-performing schools. State statute
is silent with regard to commitment to bondholders; there is no covenant
not to repeal, revoke, rescind, modify or amend the
statutory authority for the intercept. The expectation of continued
state support is strong as the intercept program benefits school capital
financings, an essential public purpose. Though the program
has never been utilized, the state has demonstrated strong commitment
to school capital financings and the intercept program's mechanics should
result in full and timely payment of debt service, if the program
were to be invoked.
The KSDE program demonstrates generally average to strong program mechanics,
the second factor of the intercept methodology. Intercept mechanics
are established in state statute (KRS 160.160) and an administrative
policy document. The mechanics of the intercept program require
lease rental payments be made directly to the paying agent 10 days prior
to a debt service due date and direct the paying agent to notify DOE if
payment of principal or interest has not been received three days prior
to the date on which the debt service payment is due. Upon notification
by the paying agent, DOE must forward, from available funds
(as described above), the amount due to the paying agent.
In the event that the School Facilities Construction Commission (SFCC),
an instrumentality of the commonwealth, has entered a participation
agreement for a set percentage of debt service on a particular bond series,
the portion of debt service to be paid by SFCC is required to be sent
directly to the paying agent on the day debt service is due. The
agreement entered into with SFCC requires SFCC to notify the school district
as well as the original purchaser of the bonds 60 days prior to the end
of a biennium if SFCC is not appropriating for their previously agreed
upon percentage of debt service in the coming biennium. In this
case, the school district would, as per the lease, appropriate
for the gross debt service coming due and KSDE program mechanics would
apply. Historically, continuing spending resolutions have
been adopted in the absence of a legislatively approved budget.
Moreover, as per 2005 state Supreme Court ruling, once local
school district debt has been authorized by the General Assembly related
debt service is authorized on a continuing basis. The case also
holds that continuing appropriations for public schools, in the
absence of a legislatively approved budget, is permitted.
Moody's therefore concludes that late budget passage likely will not be
a factor placing at risk the availability of funds under the intercept
program. Based on the overall assessment of program mechanics described
above, Moody's categorizes program mechanics as generally average
to strong.
Moody's assigns an enhanced rating to specific financings after an evaluation
of two major factors: the sufficiency of interceptable revenues
and the transaction structure. This financing rates strong on the
criterion of sufficiency (Factor 3 of the rating methodology) due to the
stability of state aid payments, the ability to accelerate state
aid for intercept, and because, as described above,
the ability to advance interceptable funds crosses fiscal years and continuing
appropriations for public schools are permitted in the absence of an approved
budget.
In addition, this financing also rates average, on Factor
4 of the methodology (Presence of and Role of Fiduciary and Reserve Fund).
There is a paying agent who is required to notify the state prior to the
debt service payment date if sufficient funds are not available.
Reserve funds are not typically utilized to support intercept financings
supporting school districts, and there is no reserve fund in the
KSDE program.
PRINCIPAL RATING METHODOLOGY
The principal methodology used in this rating was State Aid Intercept
Programs and Financings published in February 2008. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
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
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Nathan Eric Phelps
Analyst
Public Finance Group
Moody's FIS Domestic Sales Office - Dallas TX
2200 Ross Ave. Suite 4650 West
Dallas, TX 75201
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Toby Cook
Vice President - Senior Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
MOODY'S ASSIGNS Aa3 ENHANCED RATING AND NEGATIVE OUTLOOK (KSDE) TO BARDSTOWN (KY) INDEPENDENT SCHOOL DISTRICT FINANCE CORPORATION'S $4.68 MILLION SCHOOL BUILDING REFUNDING REVENUE BONDS, SERIES 2012
