APPROXIMATELY $279 MILLION IN DEBT AFFECTED INCLUDING CURRENT ISSUE
West Valley Mission Community Coll Dist, CA
Primary & Secondary Education
Lease Revenue Bonds, Series 2011B
Expected Sale Date
Lease Revenue Bonds, Series 2011C
Expected Sale Date
NEW YORK, Jul 22, 2011 -- Moody's Investors Service has assigned an Aa3 rating to the West
Valley-Mission Community College District's Lease Revenue Bonds, Series 2011B
and 2011C. We have also affirmed the district's long-term underlying rating.
The rating is based on the district's currently weaker than typical general fund
position that benefits from the availability of recurring revenues outside the
general fund. The rating also incorporates our expectation that the district
will prevent its general fund reserves from diminishing in fiscal 2012. The
rating also results from the district's solid assessed valuation, which supports
the currently outstanding general obligation bonds. The debt position, including
a modest lease burden and standard lease provisions was also factored into the
rating outcome. The bonds are secured by the district's covenant to budget and
appropriate lease payments for the use and occupancy of the leased assets,
The two notch rating distinction between the current lease rating and the
district's general obligation rating represents Moody's standard notching for
essential purpose, fixed asset leases relative to a California issuer's general
obligation rating. Broadly speaking the two notches reflect the risk of
abatement (and the related lack of seismic insurance coverage) and the narrower,
general fund security pledge for leases compared to the unlimited property tax
pledge securing general obligation bonds.
-Availability of recurring revenues outside the general fund
-Exceptionally large assessed valuation
-Somewhat weak general fund position
-2012 budget includes a spend-down of reserves that could materially affect the
current fiscal position
WEAKER THAN TYPICAL GENERAL FUND POSITION STRENGTHENED BY RECURRING
REVENUES OUTSIDE THE GENERAL FUND
The district's projected fiscal 2011 ending general fund balance is 10% of total
revenues, which is somewhat weaker than typical for a Moody's-rated community
college district. Though lower than average, it is stable having remained
essentially equal to the amount maintained in fiscal 2010. As has been the case
with community colleges throughout the state, the district implemented a range
of expenditure controls in fiscal 2011 including layoffs, not filling vacant
positions, and reducing class offerings.
For fiscal 2012, the district has budgeted to reduce its general fund reserves
by $2.9 million, that would result in an ending balance of approximately 7% of
revenues. Were the district to actually diminish its reserves by this amount,
it would apply negative pressure to the rating. The fiscal 2012 budget also
reflects the district taking a year off from the level of cost reductions it has
implemented the previous two fiscal years. Instead, the district expects to
offset the reserve reduction through various savings that have not been factored
into the fiscal 2012 budget. These savings include not filling vacant positions,
reduced OPEB costs, and energy savings related to project being financed with
the current sale. The district also anticipated that the West Valley
Mission Land Corporation will contribute approximately $855,000 in monies to
support the general fund. If these various savings and contributions come to
fruition, it would continue the district's practice of outperforming adopted
budget expectations. The district is expects to identify $2.9 million in budget
cuts for fiscal 2013 that will include possible layoffs amid a larger district
The district's general fund position benefits from the availability of money in
the West Valley Mission Land Corporation. The district's board members are also
the board members of the district's Mission-West Valley Land Corporation. The
corporation was incorporated in 1985 as a 501(c)(3) organization and currently
leases 54.4 acres of district land. This ground lease was enacted in 1990 for a
minimum term of 55 years and not to exceed more than 99 years. The
corporation also pays a minimum of 25% of its sublease revenue to the
district on an annual basis. The corporation maintains subleases to
several commercial tenants who generate $4 million in annual lease revenue. The
corporation has a reserve that is projected to end at $7 million in fiscal 2011.
This reserve can be accessed by the district's general fund. With the inclusion
of these monies, the district's available fund balance rises to 14% of total
general fund revenues.
We do not anticipate significant erosion of the district's total
available resources. However, a material decline in the general fund balance, as
shown in the adopted budget, could result in downward pressure on the rating.
EXCEPTIONALLY LARGE AND DIVERSE SILICON VALLEY ASSESSED VALUATION
The district's broad $82 billion tax base includes several sizeable high tech
concerns including Cisco, Intel, and Sun Microsystems. Despite the presence of
such large companies, the district does not have a concentrated tax base and no
single taxpayer represents a significant portion of the total tax roll. The top
twenty taxpayers represent only 9.6% if total assessed valuation, a level
that is consistent with the concentration of the top ten taxpayers in many other
district around the state. Like nearly every economy in the state, the
district's tax base is undergoing the effects of a weaker economic climate.
However, its high wealth levels and broad tax base are still very solid for the
rating level and should remain so. The approximate per capita income in the
district is 192% of the state median and underscores the high wealth levels of
the district's communities, which include Los Gatos, Saratoga, and Campbell. The
assessed valuation did fall by 3% in 2011 but given its exceptionally large size
and prospects for modest growth in 2012, we do not anticipate changes in tax
base to apply pressure to the rating by this factor alone.
TYPICAL DEBT LEVELS WITH MODERATE LEASE BURDEN THAT ESCALATES THROUGH THE LIFE
OF THE BONDS; CURRENT SALE WILL FINANCE SOLAR ENERGY PROJECT
The district's direct and overall debt levels of 0.3% and 2.4% are typical for a
Moody's-rated community college district. The lease burden is moderate at 4.7%
and will escalate steadily though the term of the lease. Proceeds from the bonds
will be used to will be used to construct solar panels that are anticipated to
lower district energy costs thereby resulting in annual savings for the general
STANDARD LEASE LEGAL PROVISIONS
The district covenants to budget and appropriate lease payments for the use and
occupancy of the leased assets. These assets include the Hospitality Management
Renovation project, the Child Development Center Replacement Building, and the
new Information System Support Facility. The facilities have a cumulative
valuation of $14.1 million. The lease agreement stipulates that the district
will maintain 24-months of rental interruption insurance, extended damage
coverage, and be subject to abatement.
Assessed Value, FY2011: $82 billion
Average annual growth, A.V., 2006-2011: 4.2%
General Fund balance, fiscal 2010: 9.3% of General Fund revenues
Projected fiscal 2011 general fund balance: 10%
Overall debt burden: 2.2%
Direct debt burden: 0.3%
The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations,
published in October 2004. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
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Moody's Investors Service
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MOODY'S ASSIGNS Aa3 RATING TO WEST VALLEY-MISSION CCD'S LEASE REVENUE BONDS
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