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28 Jun 2018
New York, June 28, 2018 -- Moody's Investors Service has assigned Aa3 underlying and Aa2 enhanced ratings to Fargo Public School District 1, ND's $14 million Limited Tax School Building Bonds, Series 2018. Moody's maintains the Aa2 rating on the district's issuer rating, the Aa3 on the outstanding general obligation limited (GOLT) debt, and the Aa3 rating on the outstanding lease revenue debt. Following the sale, the district will have $92.3 million of outstanding GOLT debt and $6.6 million of outstanding lease revenue debt.
The Aa2 issuer rating reflects the district's growing tax base that serves as a regional economic center, stable financial operations supported by healthy reserves, a growing enrollment trend, moderate debt burden and a high pension burden.
The Aa3 GOLT rating is notched once off the issuer rating reflecting our assessment of the district's fundamental GO credit characteristics, the limited nature of the security, which benefits solely from a 26.4 mill Building Fund Levy, and insufficient taxing headroom, which falls below 35% of maximum annual debt service (MADS) on the GOLT bonds.
The Aa3 lease revenue rating is based on our assessment of the district's fundamental credit characteristics, the more essential nature of the financed project (school building), and the risk of annual non-appropriation of debt service payments.
The Aa2 enhanced rating is based on the security provided by the State of North Dakota Department of Public Instruction's (NDDPI) School District Credit Enhancement Program, as established by state statute. The program rating incorporates adequate program mechanics and the credit quality of the State of North Dakota, which has an issuer rating of Aa1 with a negative outlook. For more information on the state's rating and outlook, please see our most recent rating report for the State of North Dakota dated November 3, 2017.
Under the program, established and designed by the State of North Dakota, the bonds are secured by the state's pledge to accelerate state aid that has been appropriated to the district during the current fiscal year should the district be unable to meet debt service requirements. Pursuant to North Dakota code 6-09.4-23, the superintendent of the state Department of Public Instruction (DPI) will intercept aid due to a school district if notified of a potential debt service deficiency. To participate in the program, school districts must adopt a bond resolution and agree to provide a bond counsel opinion as well as file the debt service schedule with the DPI. School districts must also certify to an additional bonds test of two times maximum annual debt service based on school aid available to the district. The district has completed all of the pre-sale requirements for participating in the program. Based on fiscal 2017- 2018 state aid revenues of $100 million, the projected available state aid on an August 1 principal payment date is approximately 11.77x maximum annual debt service (MADS) of $8.5 million, which occurs in 2026. In addition, participation in the intercept program is irrevocable as long as the 2018 bonds are outstanding.
The GOULT, GOLT and Lease Revenue ratings carry no outlooks. Outlooks are not typically assigned to local government credits with this amount of debt outstanding.
The enhanced programmatic rating carries the state's negative outlook.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Material and sustained increases in operating reserves and liquidity (underlying)
- Moderation of unfunded pension liabilities (underlying)
- Further expansion and diversification of the district's tax base (underlying)
- An upgrade in the state's issuer rating (enhanced)
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Declines in the district's employment base, tax base, or resident income levels (underlying)
- Narrowing of financial reserves or liquidity (underlying)
- Increase in debt and pension burdens (underlying)
- A downgrade in the state's issuer rating (enhanced)
- Weakening of program mechanics, intercept timing or documentation (enhanced)
- Significant decline in debt service coverage by pledged state aid (enhanced)
The district's outstanding GOLT bonds, including the Series 2018 bonds, are limited obligations of the district payable solely from the School Building Fund Levy, which may be levied upon all taxable property located in the district at the rate of 26.4 mills. Based on 2018 collections, the levy provides just over sum sufficient coverage on the all of the district's outstanding GOLT debt at 1.12 times maximum annual debt service (MADS), which occurs in 2026.
The Series 2018 bonds are additionally secured by the State of North Dakota Department of Public Instruction's (NDDPI) School District Credit Enhancement Program, which is rated Aa2 and carries a negative outlook.
The outstanding lease revenue bonds are secured by rental payments to be made by the district, subject to annual appropriation, per a lease-purchase agreement with a leasehold interest in the district's Davies High School facility granted to the trustee as collateral.
USE OF PROCEEDS
The proceeds of the 2018 bonds will provide funding to renovate and expand the Discovery Middle School.
The district covers 57 square miles and is headquartered in the City of Fargo, which is the county seat of Cass County and the largest city in North Dakota. It serves a population of approximately 104,818. The district facilities include sixteen elementary school buildings, three middle schools, three high schools, one alternative community high school, three regional treatment facilities and Trollwood Performing Arts School. District enrollment is 11,150 in fiscal 2018.
The principal methodology used in the general obligation 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
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