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New Issue:

MOODY'S ASSIGNS Aa3 RATING TO WEST VALLEY-MISSION CCD'S LEASE REVENUE BONDS

22 Jul 2011

APPROXIMATELY $279 MILLION IN DEBT AFFECTED INCLUDING CURRENT ISSUE

West Valley Mission Community Coll Dist, CA
Primary & Secondary Education
CA

Moody's Rating

ISSUE

RATING

Lease Revenue Bonds, Series 2011B

Aa3

  Sale Amount

$10,000,000

  Expected Sale Date

07/25/11

  Rating Description

Lease Rental

 

Lease Revenue Bonds, Series 2011C

Aa3

  Sale Amount

$5,000,000

  Expected Sale Date

07/25/11

  Rating Description

Revenue Bonds

 

Opinion

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.

RATING RATIONALE

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, described below.

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.

STRENGTHS

-Availability of recurring revenues outside the general fund

-Exceptionally large assessed valuation

WEAKNESSES

-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 reorganization effort.

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 fund.

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.

KEY STATISTICS

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.

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, 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 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

Andrea Unsworth
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service, Inc.
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USA

MOODY'S ASSIGNS Aa3 RATING TO WEST VALLEY-MISSION CCD'S LEASE REVENUE BONDS
No Related Data.
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