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MOODY'S ASSIGNS MIG 1 RATING TO UTICA CITY SCHOOL DISTRICT'S (NY) $54.8 MILLION GO BOND ANTICIPATION NOTES, SERIES 2011A

13 Jul 2011

MAINTAINS UNDERLYING Baa1 / NEGATIVE OUTLOOK ON $34.1 MILLION LONG TERM PARITY DEBT

Primary & Secondary Education
NY

Moody's Rating

ISSUE

RATING

Bond Anticipation Notes, Series 2011A

MIG 1

  Sale Amount

$54,840,000

  Expected Sale Date

07/06/11

  Rating Description

Bond Anticipation Notes

 

Opinion

NEW YORK, Jul 13, 2011 -- Moody's Investors Service has assigned a MIG 1 rating to Utica City School District's (NY) $54.8 million general obligation bond anticipation notes, Series 2011A. Proceeds of the notes will be used for ongoing renovations and additions to the district's school buildings.

SUMMARY RATING RATIONALE

The MIG 1 short-term rating reflects the district's satisfactory long-term credit profile and favorable history of market access, signifying the district's ability to refinance the notes at their July 15, 2012 maturity. The district's Baa1 long-term underlying GO rating reflects an adequate financial position, large urban tax base marked by below-average socioeconomic indicators, and elevated debt burden made more manageable by the district's high level of state building aid. The negative outlook reflects the possibility of significant declines in liquidity during the near term, the result of two consecutive years of large General Fund appropriations and the expectation of non replenishment. The MIG 1 rating also reflects the district's ability to issue long-term bonds under the New York school district intercept program contained in Section 99-B of the State Finance law, authorizes the state to withhold future allotments of state aid in order to make bond payments in the event of default by the school district. While the program does not ensure avoidance of a pending default or guarantee immediate repayments, we believe it does enhance the potential for recovery upon default and that the cure period is likely to be short.

STRENGTHS

* Moderately sized tax base, which is expected to benefit overtime from the city's economic redevelopment initiatives

CHALLENGES

* High reliance on volatile state revenues, which are expected to decline

* Below average socio economic profile characterized by very low wealth levels

* High debt burden

DETAILED CREDIT DISCUSSION

MIG 1 RATING REFLECTS DEMONSTRATED HISTORY OF MARKET ACCESS

Assignment of the MIG 1 rating to the notes reflects our expectation of the district's strong likelihood of market access at the note's maturity given the district's A2 enhanced and Baa1 long-term underlying ratings and favorable recent history of market access. The district has demonstrated a consistent ability to access the capital markets over the past five years, having received five bids on the current bond anticipation note (BAN) sale and an equal number of bids on its prior September 2010 and July 2009 note sale. The district also issues revenue anticipation notes (RAN) on an annual basis to fund mismatches between the timing of receipt of state aid revenues and district expenses. Its RAN sales in 2011, 2010, and 2009 received eight, five, and six bids, respectively. All bids received were submitted by major regional and national financial institutions. Moody's believes the district's underlying credit strength will permit adequate market access to refund the current BAN issue, if necessary, upon its July 2013 maturity. Market access is a key component of this rating, as the district's cash position ($14.8 million at fiscal year-end 2010) would not support fully repaying the $54.8 million BAN at maturity.

The remainder of this report is identical to the Moody's New Issue Report published June 30, 2011, with the exception of the debt ratios, which have been updated to reflect the current note issue.

ADEQUATE FINANCIAL POSITION EXPECTED TO COME UNDER PRESSURE FROM NEAR-TERM CHALLENGES RELATED TO STATE AID CUTS; SIGNIFICANT DECLINE IN RESERVES PROJECTED

The district's financial position, which has shown consistent improvement since fiscal 2006, is expected to decline significantly due to near-term pressures related to state aid and rising pension costs. The district's most recent audited financial statements show a rise in General Fund balance to $11.5 million at fiscal year-end 2010, equal to 9% of revenues, up from $7.7 million the prior year. As a result of significant cuts in state aid and increases in employee benefit costs, the district is expecting to generate a large structural deficit by fiscal 2011 year end due to a $4.7 million fund balance appropriation, which officials do not anticipate replenishing. The appropriation was made to balance out the loss in state revenues and avoid a steeper tax levy increase and is expected to bring the General Fund balance to $6.8 million or 5.3% of General Fund revenues at 2011 fiscal year-end.

The fiscal 2012 budget included another significant fund balance appropriation of approximately $6.5 million, which district officials indicate may not be replenished by year end. The district's inability to replenish the appropriation would result in a General Fund balance of $1.5 million or a very narrow 1.2% of annual revenues. An additional concern is the district's historic issuance of $10 million in revenue anticipation notes (RANs) annually in June due to the timing of state aid payments and accrued salaries paid over the summer months. Narrowing liquidity could hinder the district's ability to repay the RANs.

The district is heavily dependent on state revenues (72.2% in fiscal 2010), which is the primary driver in added pressures for fiscal 2012 and beyond. Moody's will continue to monitor the district's financial position; if General Fund reserve levels and cash position continue to decline beyond current levels, negative rating pressure could result.

CHALLENGED TAX BASE WITH LOW WEALTH INDICES

The district's $1.6 billion tax base, which is coterminous with the City of Utica, will continue to be challenged in the near term but may benefit, over time, from the city's ongoing economic redevelopment initiatives. Taxable valuation has remained essentially flat for the past 10 years, as successful tax appeals and property demolitions have offset ongoing development projects, while modest property valuation growth has driven a 6.7% average annual increase in full valuation for the past five years. Local officials are in the process of completing a new master plan for the city to guide land use, infrastructure improvements and economic redevelopment projects, with future growth expected to be driven by reuse of former industrial plants and mixed use development in the city's downtown. Employment in the district benefits from the stability afforded by several large healthcare providers operating in Utica including Mohawk Valley Network, St. Elizabeth's Medical Center and Rome Memorial Hospital. The district reports very low wealth levels including a per capita income of $15,246 (65.2% of the state median), a full value per capita of $26,846 that is approximately one-third of the state median and a poverty level of 24.5% compared to 14.6% for New York state.

ABOVE AVERAGE DEBT BURDEN MADE MANAGEABLE BY HIGH LEVEL OF STATE BUILDING AID

The district's sizable debt burden will likely remain manageable given rapid amortization of principal (100% of principal retired within 10 years) and the receipt of substantial state building aid. The district's overall debt burden of 12.6% of full valuation, which includes the overlapping obligations of Oneida County (G.O. rated A1) and the City of Utica, is considerably above the 1.9% New York state median but falls to a far more manageable 5.9% of full valuation when the district's state school building aid (98%) is taken into account. With this issuance, the district has $78.8 million in bond anticipation notes outstanding, which represent a portion of the district's $187 million capital plan approved by district voters in 2008. Projects resulting from the voter-approved 2008 bond resolution are fully funded with state building aid (98%) and an Excel grant (2%). The district anticipates refunding its bond anticipation notes with long-term indebtedness once its six-year capital program is substantially complete in 2015 or 2016. The district has no exposure to variable rate debt and is not party to any derivative agreements.

Outlook

WHAT COULD MOVE THE RATING UP; REMOVE NEGATIVE OUTLOOK

-Continued tax base growth

-Ability to replenish appropriations and increase reserve position

-Decreased debt burden

WHAT COULD MOVE THE RATING DOWN

-Deterioration of reserves

-Increased reliance on cash flow borrowing

-Declines in tax base

-Increased debt burden

KEY STATISTICS

2009 Population: 58,040

2010 Full Valuation: $1.6 billion

2010 Full Value Per Capita: $26,846

Overall Debt Burden (Adjusted): 12.6% (5.9%)

Direct Debt Burden: 7.6%

Payout of Principal (10 years): 100%

Fiscal 2010 General Fund Balance: $11.5 million (9% of 2010 General Fund Revenues)

1999 Per Capita Income (as % of NY and US): (65.2% and 70.6%)

1999 Median Family Income (as % of NY and US): (65.4% and 67.6%)

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. 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, and public information.

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

Dora Lee
Analyst
Public Finance Group
Moody's Investors Service

Andy Moleon
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
Senior Credit Officer
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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MOODY'S ASSIGNS MIG 1 RATING TO UTICA CITY SCHOOL DISTRICT'S (NY) $54.8 MILLION GO BOND ANTICIPATION NOTES, SERIES 2011A
No Related Data.
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