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Global Credit Research - 14 Mar 2018
New York, March 14, 2018 -- Moody's Investors Service assigns a A1 underlying and a Aa2 enhanced rating on Morris Area Independent School District 2769, MN's $19.1 million General Obligation School Building Bonds, Series 2018A. Following the sale, the district will have $37.8 million in rated general obligation unlimited tax (GOULT) debt.
The A1 underlying rating reflects the district's modestly-sized tax base with heavy agricultural concentration, strong demographic profile and solid financial operations with a healthy financial position. Additionally incorporated in the rating are the district's above average debt and pension burden.
The Aa2 enhanced rating reflects the security provided by the State of Minnesota's School District Enhancement Program (MSDE). The programmatic rating is notched once from the State of Minnesota's Aa1 GO rating based on sound program mechanics and the state's pledge of an unlimited appropriation from its General Fund should the district be unable to meet debt service requirements. The program's mechanics include a provision for third party notification of pending deficiency. If the school district does not transfer funds necessary to pay debt to the paying agent at least three days prior to the payment due date, the state will appropriate the payment to the paying agent directly. The outlook on the state's general obligation rating is stable.
Outlooks are generally not assigned to local government underlying ratings for issuers with this amount of debt.
The stable outlook on the enhanced rating is based on the stable outlook assigned to state's GO rating.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Diversification of the tax base
- Sustained, material growth in operating reserves and liquidity
- Moderation of debt and pension levels
- Upward movement in the state's GO rating (enhanced)
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Declines in fund balance and liquidity
- Growth in debt and pension burden
- Downward movement in the state's GO rating (enhanced)
- Weakening of MSDE program mechanics (enhanced)
Debt service on the district's general obligation (GO) bonds is secured by the district's GOULT pledge, which is secured by a dedicated property tax levy not limited by rate or amount. The security benefits from a statutory lien, but there is no lockbox structure. The bonds are additionally secured by the State of Minnesota's School District Enhancement Program (MSDE) which provides for an unlimited advance from the state's General Fund should the district be unable to meet debt service requirements.
USE OF PROCEEDS
Proceeds will finance acquisition and improvement of various school sites and facilities.
The district is located in western Minnesota (Aa1 stable) approximately 150 miles northwest of the Twin Cities (Minneapolis and St. Paul both rated Aa1 negative) metropolitan area. In 2017 the district's enrollment was 1,033.
The principal methodology used in the underlying rating was US Local Government General Obligation Debt published in December 2016. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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.
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
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for additional regulatory disclosures for each credit rating.
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