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Rating Action:

Moody's upgrades Poway USD, CA SFID 2002-1 and 2007-1 GO bonds to Aa2 and assigns Aa3 issuer rating, outlook is stable

22 Apr 2021

New York, April 22, 2021 -- Moody's Investors Service has assigned an Aa3 issuer rating to Poway Unified School District, CA and upgraded the general obligation unlimited tax (GOULT) rating to Aa2 from Aa3 for its School Facilities Improvement Districts No. 2002-1 and 2007-1. The issuer rating represents the district's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. This action concludes a review with direction uncertain initiated on January 26, 2021 in conjunction with the release of the US K-12 Public School Districts Methodology. This action affects $99.6 million of the $130.3 million par value outstanding general obligation (GO) bonds for SFID 2002-1 and $171.3 million par value outstanding GO bonds for SFID 2007-1.

RATINGS RATIONALE

The Aa3 issuer rating reflects the district's strong economic characteristics, benefiting from both its attractive northern San Diego County location and desirable educational offerings, including a long-term trend of modest enrollment growth. It further reflects the district's stable, healthy financial position, supported by conservative budgeting and significant borrowable liquidity outside the general fund and available for its sizable capital program. The rating incorporates the district's elevated leverage, primarily due to unfunded pension liabilities similar to most California school districts, and an above average fixed cost ratio. It further incorporates the potential limitation on funding capital needs posed by public perception of the district's past use of capital appreciation bonds for gaining approval of new bond authorization.

The Aa2 rating on the SFID 2002-1 and SFID 2007-1 GO 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. The SFIDS' GO ratings also consider the similarities and differences between the SFIDs' and district's demographic, economic and debt metrics. The SFIDs are nearly contiguous with each and, both comprising 75% of the district's land area, an estimated 68% of its population and 60% of its assessed valuation (AV), resulting in similar AV per capita. SFID 2002-1's pledged property taxes secure about 28% of the district's GO bonds , while SFID 2007-1 pledged property taxes secure the remaining 72%, and the overlapping debt from the district's 16 community facilities districts (CFDs) is limited to a negligible amount between SFID 2002-1 and CFD 13.

RATING OUTLOOK

The stable outlook reflects our expectation that the local economy will continue its moderate growth and maintain its strong socioeconomic metrics. It further reflects our view that the district will maintain its healthy financial position, supported by conservative budgeting and growing revenue.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Sustained strengthening of the district's financial position

- Material decline in long-term liabilities

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- A trend of declining enrollment

- Failure to secure funding for growing capital needs

- Deterioration of the district's financial profile

LEGAL SECURITY

The GO bonds are secured by an unlimited property tax pledge of all taxable property within their respective SFID boundaries. The portion of each SFID's ad valorem property tax levy restricted for debt service is collected, held and transferred directly to the paying agent by the county on behalf of the district.

PROFILE

The Poway Unified School District encompasses 81.5 square miles in northern San Diego county, with about 207,400 residents of Poway, a portion of San Diego and surrounding unincorporated areas. The district operates 25 elementary schools, six middle schools, five comprehensive high schools and one continuation high school. The total enrollment is about 36,600.

School Facility Improvement Districts (SFIDs) No. 2002-1 and NO. 2007-1 are nearly contiguous, each comprising about 75% of the school district's land area, and primarily incorporate the more urbanized areas of the district in and around the Poway. The SFIDs were established by their voters to authorize general obligation bonds for the construction and/or maintenance of school facilities to serve the residents, which we estimate at about 142,000. The remainder of the district includes 16 community facilities districts (CFD) established through election by with developers and/or property owners to assess properties for the construction of school facilities to serve their respective residents.

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.

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_1243406.

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.

Lori Trevino
Lead Analyst
Regional PFG West
Moody's Investors Service, Inc.
405 Howard Street
Suite 300
San Francisco 94105
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Roger Brown
Additional Contact
Regional PFG Dallas
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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