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Rating Action:

Moody's assigns Aa2 UND/Aaa ENH to Midland ISD, TX's Series 2020 taxable series GOULT refunding bonds

29 Jun 2020

New York, June 29, 2020 -- Moody's Investors Service assigns a Aa2 underlying rating and Aaa enhanced rating to Midland Independent School District, TX's $39.3 million Unlimited Tax Refunding Bonds, Taxable Series 2020. The Aaa enhanced rating is based on a guarantee of the Texas Permanent School Fund. Moody's maintains the Aa2 rating on the district's outstanding general obligation unlimited tax (GOULT) bonds, which will total $192.4 million post-sale. The outlook remains stable.

RATINGS RATIONALE

The Aa2 rating reflects the district's healthy financial profile, including its history of maintaining reserves at targeted levels and conservative budgeting practices. This partially insulates the district from its high economic concentration in the oil and gas sector, which is experiencing volatility because of reduced aggregate demand. Enrollment is rapidly growing, debt is low and the pension burden is manageable

The Aaa enhanced rating is based on the rating of the Texas Permanent School Fund and the structure and legal protections of the transaction which provide for timely payment by the PSF if necessary. Moody's currently rates the Permanent School Fund Aaa with a stable outlook.

The coronavirus outbreak is a social risk under our ESG framework, given the substantial implications for public health and safety. While the coronavirus crisis is not a key driver for this rating action, it may affect the district in fiscal 2022. The district depends on property tax for approximately 90% of its operating revenue, and the ongoing pandemic paired with a decline in the oil and gas sector could materially lower taxable values. 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 Midland ISD changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

Although we expect a decline in the oil and gas sector over the next two years, based on the district's financial resources and available taxing capacity, we expect the district's operations to remain stable even in the event of a notable economic slowdown.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Significant diversification of the local economy

- Material and sustained increase in reserves

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Weakened operating performance leading to erosion of operating reserves

- Material increase to the debt burden or fixed costs

- Significant economic contraction leading to sustained enrollment loss and/or AV decline

LEGAL SECURITY

The bonds are secured by a direct and continuing ad valorem tax levied by the district on all taxable property without limitation as to rate or amount. The bonds are further secured by the Texas Permanent School Fund's commitment to pay debt service if necessary.

USE OF PROCEEDS

Bond proceeds will be used to refund a portion of the district's outstanding series 2014 callable debt for a net present value savings.

PROFILE

The district of Midland is a political subdivision of the state of Texas, located in Midland County. The district is located in the Permian Basin region of west Texas, which is well known for its oil and gas reserves. The current student enrollment in the district is approximately 26,432.

METHODOLOGY

The principal methodology used in the underlying rating was US Local Government General Obligation Debt published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1191097. 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 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1068154. 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Samantha Krouse
Lead Analyst
PF General Administration
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

David Strungis
Additional Contact
Regional PFG Chicago
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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