Moody’s Investors Service upgraded its rating on $16 million of South Dakota Building Authority outstanding lease debt to Aa2 from Aa3.

The agency also assigned a Aa2 rating to $23.6 million of debt to be issued by the South Dakota Health and Educational Facilities Authority.

The issuer might price the debt as soon as this week.

The offering includes two series of lease revenue debt, one for $17.2 million of Build America Bonds and one for $6.4 million of recovery zone economic development bonds.

Proceeds from the bond issue will be used to finance improvements to the state’s vocational education system, according to Moody’s.

The debt is secured by lease rental payments by the state Board of Education. The payments are subject to appropriation by the Legislature.

Moody’s noted that the board is required to seek appropriations from the Legislature to cover any shortfall, including in the debt service reserve fund, and is also required to set school fees so that when combined with appropriations they equal 103% of future debt service.

The upgrade on the state’s outstanding building authority debt is a reflection of South Dakota’s strong finances in recent years, analysts said.

South Dakota does not issue general obligation debt, and Moody’s has no underlying rating on the state.

The state carries a AA issuer credit rating from Standard & Poor’s. Fitch Ratings rates the lease debt AA.

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