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Rating Action:

Moody's downgrades Willoughby-Eastlake City School District, OH's GO to A2

13 Feb 2020

New York, February 13, 2020 -- Moody's Investors Service has downgraded Willoughby-Eastlake City School District, OH's outstanding general obligation unlimited tax (GOULT) and general obligation limited tax (GOLT) ratings to A2 from A1 and downgraded the district's outstanding certificates of participation (COPs) rating to A3 from A2. We have also assigned an A2 rating to Willoughby-Eastlake City School District, OH's $26.7 million General Obligation (Unlimited Tax) School Improvement Refunding Bonds, Series 2020 (Federally Taxable); an A2 underlying and Aa2 enhanced rating to the district's $4.6 million Energy Conservation Refunding Bonds, Series 2020 (General Obligation Limited Tax) and an A3 rating to the district's $4.7 million Refunding Certificates of Participation, Series 2020. Following the sales, the district will have $112 million in rated GOULT debt, $13.5 million in rated GOLT debt and $23.6 million in rated COPs.

RATINGS RATIONALE

The A2 GOULT rating reflects the district's narrowing financial position given projected draws in fiscal 2019 and fiscal 2020 and has been pressured by mixed voter support for operating levies. The rating further considers the district's moderately sized tax base with average wealth and incomes, above average debt and elevated pension burden from its participation in two underfunded statewide cost-sharing plans.

The absence of distinction between the A2 GOLT rating on the district's energy conservation bonds and the A2 GOULT rating is based on the district's pledge of its full faith and credit on the payment of the GOLT bonds.

The absence of distinction between the A2 GOLT rating on outstanding long-term tax anticipation notes (TANs) and the A2 GOULT rating reflects ample taxing margin under the tax levy limitation.

The Aa2 enhanced rating on the Series 2020 bonds reflects our assessment of the Ohio School District Credit Enhancement Program (OSDCEP), which has a programmatic rating that is one notch below the State of Ohio's Aa1 general obligation (GO) rating. Interceptable funds include the district's annual state aid appropriations, which may continue to be intercepted until a debt service shortfall is fully paid. Estimated fiscal 2020 interceptable aid for Willoughby-Eastlake City School District provides sufficient coverage of maximum annual debt service (MADS) on the district's enhanced debt. Program mechanics require a third party fiscal agent to notify the state to intercept aid if debt service is not received at least fifteen days prior to its due date. Once the state confirms that the district is unable to meet debt service payments within three days prior to the debt service payment date, it must deposit the intercepted aid by 2PM the day before debt service is due. U.S. Bank National Association (LT debt, A1 stable) will sign a paying agent agreement in accordance with the administrative code requirements. Moody's has received a copy of the approval letter from both the Ohio Department of Education and Ohio Office of Budget and Management, the program administrators.

The A3 rating on the district's COPs is notched once off the A2 GOULT rating due to the risk of non-appropriation and the more essential nature of the pledged assets, which include several of the district's educational facilities.

RATING OUTLOOK

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

FACTORS THAT COULD LEAD TO AN UPGRADE

- Sustained trend of balanced operations and material strengthening of reserves

- Significant moderation of debt and pension burdens

FACTORS THAT COULD LEAD TO A DOWNGRADE

- Continued structural imbalance that weakened reserves or liquidity

- Increase in debt or pension burdens

- Reduced taxing headroom under the tax levy limitation (TANs)

LEGAL SECURITY

The $26.7 million General Obligation (Unlimited Tax) School Improvement Refunding Bonds, Series 2020 and outstanding GOULT bonds, are secured by the district's full faith and credit and pledge to levy unlimited ad valorem property taxes.

The $4.6 million Energy Conservation Refunding Bonds, Series 2020 (General Obligation Limited Tax) are secured by its full faith and credit and pledge to levy ad valorem property taxes subject to the statutory ten-mill limitation. The Series 2020 GOLT bonds are further secured by interceptable aid from the State of Ohio through the OSDCEP.

The Tax Anticipation Notes, Series 2011 are special obligations of the district, secured solely from the district's permanent improvement levy.

The $4.7 million Refunding Certificates of Participation, Series 2020 are secured by the district's obligation to make annual lease payments, subject to appropriation, in an amount sufficient to provide for annual debt service.

USE OF PROCEEDS

The $26.7 million General Obligation (Unlimited Tax) School Improvement Refunding Bonds, Series 2020 will refund a portion of the district's School Improvement Bonds, Series 2016, which were used to construct a new North High School, Longfellow Elementary School, and South High School; demolish the old North High School, Willoughby Middle School, and Longfellow Elementary School; convert part of the South High School into the new Willoughby Middle School and make various improvements to other district buildings.

The $4.6 million Energy Conservation Refunding Bonds, Series 2020 (General Obligation Limited Tax) will refund the district's Energy Conservation Bonds, Series 2012, which supported energy conservation improvements at the district's buildings.

The $4.7 million Refunding Certificates of Participation, Series 2020 refund the Series 2015 COPs, which were used to purchase and convert a former car dealership and its 17 acre site into a new vocational education facility.

PROFILE

The district is located in Lake County (Aa1), approximately 17 miles east of downtown Cleveland (A1 stable). The district operates 13 buildings to serve the entire City of Willoughby Hills and portions of the Cities of Eastlake (Baa2 stable), Willoughby (Aa2) and Willowick, including two high schools, three middle schools, five elementary schools, a preschool, STEM school and vocational education center. The district's total population was 65,682 as of 2017 and enrollment for the most recent 2019-20 school year was 7,650.

METHODOLOGY

The principal methodology used in the general obligation ratings was US Local Government General Obligation Debt published in September 2019. The principal methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018. 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.

REGULATORY DISCLOSURES

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.

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.

Michael Armstrong
Lead Analyst
Regional PFG Chicago
Moody's Investors Service, Inc.
100 N Riverside Plaza
Suite 2220
Chicago 60606
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Eric Harper
Additional Contact
Regional PFG Chicago
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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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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