New York, September 16, 2016 -- Issue: 2016 General Obligation Refunding Bonds; Rating: Aa1; Rating Type: Underlying LT; Sale Amount: $23,130,000; Expected Sale Date: 09/20/2016; Rating Description: General Obligation;
Issue: 2016 Refunding Certificates of Participation; Rating: Aa3; Rating Type: Underlying LT; Sale Amount: $11,350,000; Expected Sale Date: 09/20/2016; Rating Description: Lease Rental: Abatement;
Summary Rating Rationale
Moody's Investors Service has upgraded Los Alamitos Unified School District's (CA) School Facilities Improvement District (SFID) No. 1 General Obligation (GO) Bonds to Aa1 from Aa2 and assigned an Aa1 rating to its $23.13 million 2016 GO Refunding Bonds. Concurrently, Moody's has upgraded the Los Alamitos Unified School District's Certificates of Participation to Aa3 from A1 and assigned an Aa3 rating to the district's $11.35 million 2016 Refunding COPs. Post-issuance the district will have $42.88 million of COPS and its SFID No. 1 will have $101.89 million of GO bonds outstanding.
The Aa1 GO rating reflects the SFID's large, built-out and stable tax base; above average wealth levels of district residents; a robust financial position with very strong reserves and liquidity; manageable debt, pension and OPEB liabilities; as well as very strong management.
The GO rating also incorporates the strength of the voter-approved, unlimited property tax pledge securing the bonds and the well-established levy and collection history for debt service. Orange County rather than the district levies, collect, and disburses the district's property taxes, including the portion constitutionally restricted to pay debt service on general obligation bonds.
The Aa3 COP rating reflects a moderate legal structure for California abatement lease financings, a pledged asset which we view as "more essential," and a dedicated revenue stream that is projected to fully cover debt service on the certificates. The notching also reflects the strong legal features of California school district general obligation bonds that are not shared by lease revenue debt.
Outlooks are not typically assigned to local government issuers with this amount of debt outstanding.
Factors that Could Lead to an Upgrade
Material growth to the district's assessed valuation
Significant, sustained increase to resident wealth levels
Solid entrenchment in basic aid status
Factors that Could Lead to a Downgrade
Meaningful weakening of financial reserves from current levels
Significant contraction to the tax base or wealth levels
The 2016 General Obligation Refunding Bonds are secured by the GO levy of ad valorem taxes, unlimited as to rate or amount, upon all taxable property within the district's SFID No. 1. The portion of district's ad valorem property tax levy restricted for debt service is collected, held and transferred directly to the paying agent by the county on behalf of the district. Under California law, the county must raise property taxes by whatever amount necessary to repay the obligation, irrespective of the school district's financial position.
The 2016 Refunding Certificates of Participation are secured by payments made by the district to the trustee for use and occupancy of the Weaver Elementary School, a leased asset that we view as "more essential." The COPs are a standard California abatement lease and include covenants for title, property, and twenty-four months of rental interruption insurance. The certificates will not have a reserve fund, a negative credit factor. Though not legally pledged for repayment of the certificates, the district has consistently allocated special tax revenues levied by its Community Facility District No. 90-1 to meet debt service requirements. Conservative revenue assumptions for this special tax are projected to fully cover debt service requirements on the 2016 Refunding COPs and on the outstanding Series 2003 and 2012 Certificates through their respective final maturities. Additionally, Orange County has adopted the Teeter Plan, and provides the district a full payment of its special tax levy. The availability and application of this supplementary revenue source, in addition to the district's very strong financial reserve position, are positive credit factors offsetting the lack of a dedicated reserve.
Use of Proceeds
Proceeds from the 2016 General Obligation Refunding Bonds will refund a portion of the district's outstanding Election of 2008 General Obligation Bonds, Series E.
Proceeds from the 2016 Refunding Certificates of Participation will refund on a current basis the District's outstanding 2005 and 2007 Certificates of Participation.
The Los Alamitos Unified School District is located in northern Orange County (Aa1/Stable) and serves the communities of Los Alamitos and Seal Beach, portions of the cities of Cypress, Huntington Beach (Aa1/NOO) and Long Beach (Aa2/Stable), and the unincorporated area of Rossmoor. The district operates 6 elementary schools, two middle schools, and one high school, serving an average daily attendance of 9,655 in fiscal 2016. The district has an overall population of 50,324, and a local economy driven by strong tourism, medical and finance sectors.
The principal methodology used in the this rating was US Local Government General Obligation Debt published in January 2014. An additional methodology used in the lease-backed rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.
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