NOTE: On September 14, 2016, the press release was corrected as follows: The list of affected credit ratings accessible via hyperlink from this press release has been corrected as follows: For the Pennsylvania Act 150 School District Intercept Program, certain bonds that were previously subject to early redemption were removed, Carmichaels Area School District's Series 2016 bonds, Hazleton Area School District's Series 2008, Series 2011, and Series 2013 bonds, and York City School District's Series 2007A bonds were added, and "Hempfield Area School District" was changed to "Hempfield School District;" For the Pennsylvania State Public School Building Authority Lease Revenue Intercept Program, Philadelphia School District's Series 2006A and 2006B bonds were added. Revised release follows.
New York, August 15, 2016 -- Summary Rating Rationale
Moody's Investors Service has upgraded Pennsylvania's school district pre-default enhancement program to A2 from Baa1. We have also raised the maximum rating on school district bonds enhanced under Pennsylvania's post-default intercept to A3 from Baa1 (still maintaining a floor of B1), and increased the maximum uplift from an underlying rating to two notches from one notch. The outlook is revised to stable from negative. Additionally, we have reinstituted the "top-down" treatment for Pennsylvania school district bonds whose structures ensure the intercepts would take place prior to default. All Pennsylvania school district bonds enhanced on a pre-default basis are now rated A2 regardless of the underlying rating. As a result of these changes, we have upgraded the majority of Pennsylvania school districts' enhanced ratings, in some cases by multiple notches. Please click on this link [https://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM191670] for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuerThe upgrades to the PA School District Enhancement Program (Fiscal Agent Agreement) and PA School District Enhancement Program (SPSBA) incorporate a law Pennsylvania passed on July 13 that would provide for state funds to be intercepted and diverted to bondholders in the event of a default even without appropriations due to school districts. The law eliminates the doubts about the program's swiftness and effectiveness that arose during the commonwealth's fiscal 2016 budget impasse, during which school districts operated for months without any appropriations due to them, and therefore no funds available to be intercepted to prevent or cure a default. With the new law in place, funds will always be available to prevent or cure defaults, regardless of whether the commonwealth has passed a budget.
The stable outlook on the intercept program mirrors the outlook on the Commonwealth of Pennsylvania (Aa3 stable). The commonwealth's stable outlook recognizes that Pennsylvania's problems - while sure to persist - are unlikely to lead to sharp liquidity deterioration, major budget imbalances, or other pressures consistent with lower ratings for US states.Our outlooks on post-default enhanced ratings will follow this rule: For underlying ratings at the post-default ceiling (A3) or higher, the outlook is the same as the commonwealth's. For underlying ratings one or two notches below the ceiling (Baa1 or Baa2), the outlook is the lower of the outlook on the underlying or on the commonwealth. For underlying ratings three notches below the ceiling (Baa3) or lower, the outlook is the same as the underlying. There is one exception: the outlook on the post-default enhanced rating on the Penn Hills School District (underlying rating B3 negative) is stable. Because Penn Hills' post-default enhanced rating is B1, it is already at the floor and would be unlikely to go lower even if Penn Hills' underlying rating were to go lower.
Factors that Could Lead to an Upgrade
Upgrade of commonwealth's rating
Factors that Could Lead to a Downgrade
Downgrade of commonwealth's rating
The legal security for the intercept is spelled out in three statutes, which provide for the commonwealth to intercept aid due to a school district and redirect it to bondholders in the event of a default. In order to achieve a structure that would prevent a default in the first place, school districts' bonds sometimes also include provisions for early notification or for the commonwealth to pay debt service directly.We rate all Pennsylvania school district bonds on a post-default basis unless a process for triggering the intercept prior to default is documented.
Use of Proceeds
The principal methodology used in these ratings was State Aid Intercept Programs and Financings: Pre and Post Default published in July 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
The person who approved the Pennsylvania School District Enhancement Issuer level credit ratings is Nicholas Samuels, VP-Senior Credit Officer, Public Finance Group, Tel: 212-553-0376, Subscribers Tel: 212-553-1653. The person who approved the Pennsylvania School District Enhanced Sale level credit ratings is Orlie Prince, Senior Credit Officer, Public Finance Group, Tel: 212-553-0376, Subscribers Tel: 212-553-1653.
The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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