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MOODY'S ASSIGNS MIG 1 RATING DRY CREEK JESD'S 2011 TRANS ; APPROXIMATELY $2.9 MILLION IN DEBT AFFECTED

30 Aug 2011

LONG TERM RATING AFFIRMED

Primary & Secondary Education
CA

Moody's Rating

ISSUE

RATING

Tax and Revenue Anticipation Notes Series 2011

MIG 1

  Sale Amount

$2,900,000

  Expected Sale Date

08/31/11

  Rating Description

Tax and Revenue Anticipation Notes

 

Opinion

NEW YORK, Aug 30, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to Dry Creek Joint Elementary School District's Tax and Revenue Anticipation Notes (TRAN). We have also affirmed the Aa2 rating on the district 1997 general obligation bonds.

RATINGS RATIONALE

The rating reflects the district's very narrow projected fiscal 2012 general fund ending cash balance, which we anticipate will be materially stronger than forecast. The general fund cash is also enhanced by the availability of borrowable alternate liquidity, a key credit positive. The somewhat modest borrowing size and above average set-aside timing for note repayment are also credit strengths factored into the rating. The TRAN is secured by the district's pledge of fiscal 2012 unrestricted receipts, which generally comprise all taxes, income, revenue, cash receipts, and other legally available funds attributable to fiscal 2012.

STRENGTHS

-Consistent history of outperforming cash projections that should continue in fiscal 2012

-Satisfactory projected total ending cash balance with the inclusion of available alternate liquidity

-Moderately sized borrowing as percentage of total projected receipts

-Above average set-aside timing for note repayment

WEAKNESSES

-Potential mid-year budget cuts could pressure budget

-Narrow projected fiscal 2012 ending cash balance

SOLID PROJECTED FISCAL 2011 ENDING CASH BALANCE THAT CONTINUES PRACTICE OF OUTPERFORMING CONSERVATIVE CASH FLOW FORECASTS

As it has for each of the last five years, Dry Creek's solid 11.1% projected ending general fund cash balance significantly outperformed the original ending cash balance projection. The district originally anticipated finishing fiscal 2011 with a narrow 2.3% ending cash balance. This expectation reflected the district's long standing practice of building forecasts based on the expectation of completely spending all budgeted disbursements. However, the district has typically controlled school site costs thereby capturing significant savings at the end of the year to result in higher ending cash balances than budgeted. Since 2007, the district's actual ending cash has been no less than 28% higher than the originally budgeted amount and in most years, well above that minimum variance.

To generate the fiscal 2011 savings, the district implemented three furlough days for teachers and management and one furlough day for classified staff. The district had also assumed a more dire reduction in state money than was actually received. We anticipate that the district will continue to closely monitor its cash flow to produce stronger than projected results in fiscal 2012.

WEAK PROJECTED FISCAL 2012 GENERAL FUND CASH THAT COULD BE CHALLENGED BY POTENTIAL MID-YEAR REDUCTIONS

The district's projected fiscal 2012 general fund ending cash balance is very weak at just 2.1% of total general fund receipts. This level of cash is well below the amount typically maintained by a California school district. However, our rating considers that the district will continue to outperform its forecasted cash flow projections and produce somewhat stronger actual results.

The district anticipates saving carryover money that is not spent as the schools typically do not spend the entirety of their budgets. The district has typically captured approximately $500,000 in carry-over money as schools manage costs throughout the year. This year's carry-over savings are likely to be about $250,000. In addition, another $350,000 will be received for class size reduction funding. These additional monies would increase the 2012 ending cash balance to 3.5%, still notably weak but sufficient for the rating when considered in concert with the district's other credit strengths.

This forecast assumes another $10 million deferral and the restoration of teaching positions as per AB 114.The district's exposure to the potential state mid-year budget reductions is approximately $1.7 million. Were these cuts to occur, it would reduce the district's ending cash to zero in absence of any offsetting actions. However, the board has approved the use of inter-fund borrowing and could implement classified employee layoffs to restore the balance to a positive position.

PROJECTED ENDING CASH ENHANCED BY AVAILABLE ALTERNATE LIQUIDITY

A key credit positive is the availability of the district's $3.9 million in alternate liquidity. The inclusion of these funds brings the total available projected ending fiscal 2012 cash balance to a satisfactory 11.8% of total general fund receipts. These funds can be borrowed across fiscal years without having to be repaid in the same year in which they were borrowed. The monies include $799,000 in the deferred maintenance fund, $2.8 million in the capital facilities fund, and $306,000 in the reserve for capital outlay.

MODEST BORROWING AMOUNT AND ABOVE AVERAGE SET-ASIDE TIMING FOR NOTE REPAYMENT

The $2.9 million borrowing amounts to a modest 7% of projected fiscal 2012 receipts. The district will set-aside 50% of funds needed for note repayment in January and April of fiscal 2012. This will result in an above average dollar weighted set-aside of 3.5 months prior to fiscal year-end.

The TRAN is being issued to fund the district's mid-year cash flow needs. Dry Creek's TRAN is one of an expected several Placer County school district TRANs to be sold simultaneously using a single official statement. The notes are separate securities, each one solely an obligation of the issuing district.

KEY STATISTICS

Projected Amount Borrowed as a % of Receipts, FY 2012: 7%

Actual Ending Cash as a % Receipts, FY 2010: 10.6%

Estimated Actual Ending Cash as a % of Receipts, FY 2011: 11.1%

Projected Ending Cash as a % of Receipts, FY 2012: 2.1%

Alternate Liquidity: $3.9 million (11.8% )

Pledged Set-Aside Timing (months before June): 3.5

The principal methodology used in this rating was Short-Term Cash Flow Notes 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 rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's 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

Michael Wertz
Analyst
Public Finance Group
Moody's Investors Service

Dari Barzel
Backup Analyst
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 MIG 1 RATING DRY CREEK JESD'S 2011 TRANS ; APPROXIMATELY $2.9 MILLION IN DEBT AFFECTED
No Related Data.
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