Moody's Investors Service said it has downgraded to Baa2 from Baa1 the underlying rating on Duluth Independent School District No. 709, Minn.'s outstanding general obligation and parity rated full-term certificates of participation debt.
Moody's has also downgraded the rating on the district's outstanding COPs subject to annual appropriation to Baa3 from Baa2.
The Baa3 rating is notched once off the general obligation rating due to the risk of annual non-appropriation. Post-sale, the district will have $60.4 million in general obligation bonds, $183.2 million in full-term COPs, and $40.5 million in COPs subject to annual appropriation outstanding. The outlook for all securities remains negative.
The Baa2 underlying GO rating reflects the district's depletion of reserves over the past few years, reliance on cash-flow borrowing for operations, declining enrollment, and high debt burden with weak amortization structure.
The district's full-term COPs are rated on parity with its general obligation rating as the rental payments are funded from a separate, statutorily authorized lease levy and are not subject to annual appropriation. The district's outstanding Series 2009B, 2010D, and 2012B COPs are rated one-notch below the district's underlying general obligation rating due to the risk of annual non-appropriation and given that the securities do not benefit from a dedicated levy.
The COPs ratings also incorporate the general obligation characteristics of the district.
