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Rating Action:

Moody's assigns A1 Und./A1 Enh. ratings to Boyle County School District, KY's lease revenue bonds

14 Jul 2020

New York, July 14, 2020 -- Moody's Investors Service has assigned an A1 underlying and an A1 enhanced rating to the Boyle County School District, KY's $4.6 million School Building Revenue Bonds, Series of 2020, issued through the Boyle County School District Finance Corporation, KY. Moody's maintains the district's Aa3 Issuer rating and the A1 underlying rating on the district's outstanding rated parity lease revenue debt.

The issuer rating is equivalent to the district's hypothetical general obligation unlimited tax (GOULT) rating; there is no debt associated with the GOULT security.

RATINGS RATIONALE

The Aa3 issuer rating reflects our assessment of the district's implicit general obligation credit strength; no rated debt is currently outstanding with this security. The rating incorporates the district's moderately-sized tax base benefiting from its proximity to the City of Lexington (Lexington-Fayette Urban County Government, KY, Aa2 stable), slightly below-average resident income levels, healthy reserves and liquidity, and an above average debt burden.

The A1 underlying lease revenue rating reflects the risk of non-appropriation of annual rental payments for debt service on the lease revenue bonds and the essential nature of the leased assets secured by a statutory mortgage lien.

The A1 enhanced rating is based on the Kentucky School District Enhancement Program (KSDE) which carries an A1 rating with a stable outlook. The program rating is available to all Kentucky school districts and the rating and outlook shadows the Commonwealth of Kentucky, which is currently Aa3 stable.

The program is supported by the Kentucky Department of Education's (KY DOE) commitment to forward any funds available for intercept directly to the district's paying agent in the event of a pending debt service deficiency. The mechanics of the intercept program require lease rental payments to be made directly to the district's paying agent at least 10 days prior to a debt service due date. The paying agent must notify the KY DOE if payment of principal or interest has not been received three days prior to the date on which the debt service payment is due.

State oversight of the program is strong as school district operating budgets, long-term facilities plans, and debt issuances must be reviewed and approved by the KY DOE. The state's oversight is further reflected in the KY DOE's ability to access school district financials on a real time basis and a record of state intervention in underperforming schools.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. We do not see any material immediate credit risks for Boyle County School District. Kentucky issued stay-at-home orders mid-March and has begun phasing in re-openings, and is enforcing health and safety standards. The state also passed a one-year budget in light of the coronavirus (normally a biennial budget), which kept student funding largely flat relative to the prior year. However, the situation surrounding coronavirus is rapidly evolving and the longer term impact will depend on both the severity and duration of the crisis. If our view of the credit quality of Boyle County School District changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

Outlooks are usually not assigned to local government issuers with this amount of debt.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Substantial tax base expansion and improvement in resident income levels (issuer rating)

- Significant growth of reserves and liquidity (issuer rating)

- Material reduction in debt burden (issuer rating)

- Upgrade of the issuer rating (lease rating)

- Upgrade of the State of Kentucky's GOULT rating (enhanced rating)

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Substantial increase in debt burden (issuer rating)

- Reduction in operating flexibility and reserve levels (issuer rating)

- Material contraction in tax base and weakened income levels (issuer rating)

- Downgrade of the issuer rating (lease rating)

- Downgrade of the State of Kentucky's GOULT rating (enhanced rating)

LEGAL SECURITY

The bonds are secured by annual lease rental payments from the school district, which are subject to annual appropriation. Additional bondholder security is derived from a statutory mortgage lien on the financed projects.

The mechanics of the state enhancement program direct the paying agent to notify the KY DOE if payment of principal or interest has not been received three days prior to the date on which the debt service payment is due. Upon notification by the paying agent, the KY DOE must forward, from available funds, the amount due to the paying agent.

KY DOE's strong oversight and willingness to exercise its powers mitigates the risk of non-appropriation. All school district budgets are subject to annual approval by the KY DOE. Additionally, KY DOE is authorized to disapprove a budget if it is financially unsound or fails to provide for debt service, payment of rentals in connection with debt service, or otherwise to comply with the law. A lease's nonrenewal or default would likely result in a takeover of the school's fiscal management and/or removal of the elected school board. KY DOE has a record of taking over the management of school districts that face deficit operations.

USE OF PROCEEDS

Proceeds from the 2020 bonds will be used to fund the renovation of the existing Boyle County Middle School into Woodlawn Elementary School.

PROFILE

Boyle County School District is located in the Bluegrass Region of Kentucky, approximately 43 miles from the City of Lexington, KY (Lexington-Fayette Urban County Government, KY, Aa2 stable). The district is coterminous with Boyle County (Aa3), except for the City of Danville, and has an estimated average daily attendance of 2,392 for the 2019-20 school year. The board consists of five elected members, representing individual election districts, that serve staggered four-year terms. The Boyle County School District Finance Corporation is a non-profit corporation created by the district pursuant to Kentucky Revised Statute 162.385 to act as a municipal corporation and agency and instrumentality of the board.

METHODOLOGY

The principal methodology used in the underlying rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1102364. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Nisha Rajan
Lead Analyst
Regional PFG Northeast
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Douglas Goldmacher
Additional Contact
Regional PFG Northeast
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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