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Rating Action:

Moody's assigns Aa3 to Norwalk-La Mirada USD, CA's Election of 2014 GOULT Bonds, Series E; affirms A1 issuer rating; outlook stable

22 Apr 2021

New York, April 22, 2021 -- Moody's Investors Service has assigned a Aa3 rating to Norwalk-La Mirada Unified School District, CA's Election of 2014 General Obligation Bonds, Series E. The bonds will be issued in the expected par amount of $81 million. Concurrently, Moody's has affirmed the Aa3 ratings on the district's $210.3 million in outstanding general obligation unlimited tax (GOULT) bonds. Moody's has also affirmed the district's A1 issuer rating. The issuer rating reflects the district's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. The outlook is stable.

RATINGS RATIONALE

The A1 issuer rating reflects the district's sizeable, primarily residential economy southeast of the city of Los Angeles (Aa2 stable) with resident income levels in line with US medians. The rating also incorporates the district's sound financial position, which is further supported by stable state funding and the receipt of significant one-time revenues to address costs stemming from the coronavirus pandemic. Also factored into the rating are the district's ongoing enrollment declines that will require continued expenditure reductions to maintain budgetary balance. The district's leverage and fixed costs are elevated and will remain so given $140.7 million in remaining authorization and rising pension costs.

The Aa3 rating on the district's GOULT bonds is one notch higher than the district's issuer rating. The one notch distinction reflects California school district GO bond security features that include the physical separation through a "lockbox" for pledged property tax collections and a security interest created by statute.

RATING OUTLOOK

The stable outlook reflects our expectation that modest growth in the district's economy will continue and that the district's finances will remain satisfactory despite pressure from enrollment declines and rising pension expenses.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Reversal of enrollment declines

- Strengthening of resident income and wealth levels

- Reductions in leverage and fixed costs

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Continued enrollment declines that adversely affect the district's ability to maintain balanced operations

- Significant weakening of the district's overall financial position

- Economic slowing or weakened resident income levels

LEGAL SECURITY

The district's GOULT bonds are secured by an unlimited property tax pledge of all taxable property within the district boundaries. Debt service on the rated debt is secured by the district's voter-approved unlimited property tax pledge. Los Angeles County (Aa1 stable) rather than the district, will levy, collect, and disburse the district's property taxes, including the portion constitutionally restricted to pay debt service on general obligation bonds.

USE OF PROCEEDS

The current issuance represents the 5th issuance from a $375 million authorization approved by district voters in 2014. Following issuance of the Series E bonds, the district will retain $140.7 million in authorized, but unissued GO debt. Bond proceeds will fund a variety of capital improvements at the district's high schools including gym modernizations and installation of new, synthetic sports fields.

PROFILE

Located 10 miles southeast of the City of Los Angeles, the district covers an area of sixteen square miles. The district serves significant portions of the City of Norwalk, City of La Mirada, and portions of Santa Fe Springs, Whittier and unincorporated areas of Los Angeles County. The district operates 17 elementary schools, 6 middle schools, 5 high schools, 2 adult schools and three pre-schools. In fiscal 2021, the district's enrollment equals 16,209, a figure that continues to decline from a peak enrollment of over 23,000 in fiscal 2000. Enrollment declines are projected to continue through 2029, bottoming out at just under 13,000.

METHODOLOGY

The principal methodology used in these ratings was US K-12 Public School Districts Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1202421. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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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.

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