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13 Mar 2018
New York, March 13, 2018 -- Moody's Investors Service has assigned an underlying A1 and enhanced (SBQLP) Aa1 rating to Flushing Community Schools, MI's $6.7 million 2018 School Building and Site Bonds (Unlimited Tax General Obligation). Concurrently, Moody's maintains the A1 rating on the district's outstanding general obligation unlimited tax (GOULT) and limited tax (GOLT) bonds. Following the sale the district will have a total of $30.1 million and $3.1 million of GOULT and GOLT debt, respectively.
The underlying A1 GOULT rating reflects the district's moderately-sized tax base, manageable debt burden and elevated pension burden. Additionally factored is our expectation that the district's satisfactory fund balance and adequate liquidity will be maintained over the near term given the structure of union contracts which include trigger provisions that should protect against material degradation. Outstanding GOLT debt is rated at the same level reflecting the district's full faith and credit pledge towards the repayment of limited tax debt.
The Aa1 enhanced rating is based on the programmatic assessment of the Michigan School Bond Qualification and Loan Program (SBQLP), and the strength of the State of Michigan's GO credit, currently rated Aa1. Under the program, the state has a constitutional obligation to provide a school district with sufficient funds to make timely debt service payments, if necessary. The program's sound mechanics include independent third party notification to the state in the event of debt service insufficiency. Should the school district fail to transfer the necessary funds, the Michigan Department of Treasury is notified of the deficiency by the paying agent three business days prior to the debt service payment date, at which time the state treasurer must make a loan from the State's School Loan Revolving Fund (SLRF) to ensure timely debt service payment.
Outlooks on underlying ratings are typically not assigned to local governments with this amount of debt. The outlook on the SBQLP program is stable reflecting the stable outlook on the State of Michigan.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Sustained increases to fund balance and liquidity
- Positive enrollment trends leading to increased revenue and improved budgetary stability
- Upgrade of Michigan's general obligation rating (enhanced)
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Decline in fund balance and liquidity
- Negative enrollment trends resulting in revenue loss and diminished budgetary stability
- Increased pension burden, or greater than expected increases to the district's debt burden
- Downgrade of Michigan's general obligation rating (enhanced)
- Weakening of program mechanics (enhanced)
Debt service on general obligation unlimited tax (GOULT) debt, including the Series 2018 bonds, is secured by a dedicated debt service levy, through collection of ad valorem taxes on all taxable property. The bonds are also secured by the State of Michigan's School Bond Qualification and Loan Program (SBQLP), which is the basis for the enhanced rating.
Outstanding general obligation limited tax (GOLT) debt is considered a first budget obligation of the district to be paid from general funds available, subject to constitutional and statutory tax rate limitations. GOULT and GOLT debt carries the district's full faith and credit pledge.
USE OF PROCEEDS
Proceeds from the 2018 GOULT School Building and Site Bonds will be used to finance a variety of district-wide capital projects, including a new high school gymnasium, facility upgrades to district buildings, and security features. The borrowing reflects the district's second and final issuance pertaining to borrowing authority approved by voters at a November 2017 bond election.
Flushing Community Schools encompasses 65 square miles in Genesee County (A2 stable), 10 miles west of the City of Flint. The district serves the City of Flushing and portions of the townships of Clayton, Flint, Flushing and Mt. Morris offering pre-K through 12th grade education to 4,078 students in a community of approximately 27,000 residents.
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 Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 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
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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