Moody's Investors Service said it has downgraded South Washington County Independent School District 833, Minn.'s general obligation (GO) underlying rating to Aa3 from Aa1, which applies to $277.6 million of post-sale GO debt.
Concurrently, Moody's has assigned a Aa3 underlying rating to the district's $14.8 million GO alternative facilities bonds, Series 2014A.
Proceeds of the bonds will finance capital improvement projects. The 2014A bonds are secured by the district's general obligation unlimited tax (GOULT) pledge.
Additionally, Moody's has assigned a Aa3 underlying rating to the district's $5.7 million capital facilities bonds, Series 2014B. The series 2014B bonds are being issued pursuant to Minnesota Statute, Section 123B.62 to finance qualified capital projects.
Per state statute, annual debt service paid toward the bonds is limited by the district's operating capital revenue, which amounted to $4.1 million in fiscal 2013 and is calculated based on a state formula driven by enrollment and the age of district facilities.
Maximum annual debt service on the series 2014B bonds is estimated to be less than 20% of the annual statutory debt service cap. Pursuant to state law, the district will levy an annual debt service levy to finance payments on the bonds, but that levy must be offset by an equal reduction in general fund levies.
The district intends to use a portion of the increase in its voter-approved general fund levy, approved by voters in November of 2014, to offset the general fund levy reduction. Due to the wide margin available under the annual debt service cap, as well as the limited amount of annual debt service relative to total general fund revenues, the series 2014B bond are rated on parity with the district's GOULT debt.
Moody's also assigns a Aa2 enhanced rating to both the Series 2014A and 2014B bonds. The enhanced Aa2 programmatic ratings and stable outlooks on the series 2014A and 2014B bonds reflect the additional security provided by the state of Minnesota's School District Credit Enhancement Program (MSDE). The programmatic rating is notched from the state of Minnesota's Aa1 rating. The state's outlook is stable.
The Aa3 reflects the significant deterioration in operating reserves experienced over recent years, the expectation that reserves will decline further in the near term, and an above average debt burden with additional borrowing planned.
