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MOODY'S ASSIGNS MIG 1 RATING TO CERRITOS CCD'S 2011 G.O. BOND ANTICIPATION NOTES; Aa2 LONG TERM RATING AFFIRMED

20 Apr 2011

APPROXIMATELY $20 MILLION IN DEBT AFFECTED

Primary & Secondary Education
CA

Moody's Rating

ISSUE

RATING

General Obligation Bond Anticipation Notes

MIG 1

  Sale Amount

$20,000,000

  Expected Sale Date

04/26/11

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Apr 20, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to the Cerritos Community College District's 2011 General Obligation Bond Anticipation Notes (BANS). We have also affirmed the district's long-term rating of Aa2 assigned to its 2009 general obligation bonds.

RATINGS RATIONALE

The short-term rating reflects the district's ample remaining authorization to issue general obligation bonds to take-out the notes, which does not require additional assessed valuation growth in order to be issued. The MIG 1 also reflects the district's viable alternate plans for take-out financing in the event the general obligation take-out bonds cannot be issued; this includes the potential to renew the notes or issue certificates of participation (COPs). The short term rating also incorporates the district's sound plan to take-out the notes at least one month before maturity, which should allow the district sufficient time to manage any unforeseen circumstances well in advance of note maturity. The district's likely market access afforded by its long-term Aa2 rating is also factored into the rating.

The long-term rating is derived from the district's sizeable tax base, modest debt levels, and still-solid fiscal position despite funding pressures that could somewhat narrow the general fund balance in fiscal 2011 and 2012. The BANs are secured by the proceeds of the sale of general obligation bonds, which will be issued prior to note maturity. Once issued, those bonds will be secured by the district's unlimited property tax pledge.

AMPLE REMAINING BOND AUTHORIZATION FOR TAKE-OUT FINANCING; VIABLE ALTERNATIVES FOR NOTE REPAYMENT

In 2004, nearly 58% of Cerritos voters authorized the district to issue $210 million of general obligation bonds. The purpose of the authorization is to make a range of capital improvements to district facilities. The district has issued $127 million of the authorized amount with an ample $83 million remaining to repay the $20 million notes. The district is issuing the notes so as to not exceed its current $26.77 tax rate. In 2012, the district's debt structure will decline by 25.5%, which will enable it to issue new bonds to take out the notes without exceeding its target tax rate. It should be noted that the district is legally permitted to issue the bonds without any additional assessed valuation growth and regardless of whether the current tax rate is exceeded.

The security for the notes also benefits from the district's covenant to issue either renewal notes or COPs in the event that it cannot issue general obligation bonds to provide take-out financing for the notes. The COPs would presumably be secured by the district's general fund resources. Given the district's low debt burden and lack of existing COPs, we do not anticipate that the issuance of COPs would constitute a significant credit weakness for the district. Noteholders also benefit from the district's plan to issue the G.O. bonds no less than one month prior to note maturity, which should allow the district enough time to implement alternatives if the bonds cannot be issued as planned.

ECONOMIC AND FISCAL COMPONENTS OF THE LONG-TERM RATING REMAIN APPROPRIATE TO THE RATING

Despite consecutive years of assessed valuation decline of 1.9% and 2.5%, the district's $34.9 billion 2011 tax base is still suitably sized for the rating. Cerritos serves an older, largely built out portion of southeastern Los Angeles County that includes the cities of Norwalk, Cerritos, and Bell Gardens among others. The limited level of new housing construction during the boom years has muted the impact of the downturn upon the local tax base relative to other portions of the state that have undergone double-digit corrections. Though the district is not particularly wealthy given an assessed valuation per capita of approximately $77,616, the base is very well diversified with the top twenty tax payers accounting for just 5% of the total assessed valuation. The district expects that over the short-term assessed valuation growth will reflect that of the county as a whole, which is currently forecasting a 1% increase for 2013.

The fiscal 2010 general fund balance was 16.1% of total general fund revenues, which is consistent with the norms for Moody's-rated community college districts. We anticipate that the ending fiscal 2011 balance will remain at essentially the same level as 2010, though there is the possibility for a very small (approximately $575,000) reduction in reserves. For fiscal 2012, the district is forecasting a "worst-case" scenario budget gap of $7.5 million that it would close with a combination of expenditure cuts and the use of reserves. Approximately $5 million in budget solutions will result from reducing classes, closing vacant positions, furlough days, reducing summer school, and possibly salary cuts. The district would also potentially use $2.5 million in reserves. In this case, the district's ending fiscal 2012 general fund balance would still be approximately 12%-13.5% of total general funds and remain consistent with its current long-term rating assignment.

TYPICAL LONG-TERM DEBT PROFILE; STRONG LIKELIHOOD OF MARKET ACCESS

The district's direct and overlapping debt levels are only 0.3% and 1.8% of the district's total assessed valuation and are both typical for a Moody's-rated community college district. The district does not have any variable rate obligations amid its $109 million in general obligation debt. An additional $83 million general obligation bonds are expected to be issued in September 2011. Proceeds from that sale are expected to take-out the current notes and provide the final round of financing for the district's capital improvement plan. We anticipate that the district's long-term rating will provide a high likelihood of market access to sell additional debt.

KEY STATISTICS

Assessed valuation: $34.9 billion

Fiscal 2010 general fund balance as a % of revenue: 16.1%

Direct debt: 0.3%

Overlapping debt: 1.8%

Remaining G.O. bond authorization: $83 million

The principal methodology used in this rating was Bond Anticipation Notes and Other Short-Term Capital Financings published in May 2007.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics 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

Michael Wertz
Analyst
Public Finance Group
Moody's Investors Service

Eric Hoffmann
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

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MOODY'S ASSIGNS MIG 1 RATING TO CERRITOS CCD'S 2011 G.O. BOND ANTICIPATION NOTES; Aa2 LONG TERM RATING AFFIRMED
No Related Data.
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