Moody's Investors Service assigned a #Aaa rating to $122.9 million of bonds sold by the San Jose Unified School District because they were refunded in 2005 and the proceeds invested in Treasury securities.
"They did a refunding of three issues and asked us to rate the refunded issuance because the bonds have been defeased and are being escrowed to the next call date," explained Gregory W. Lipitz, an analyst in the public finance group at Moody's, noting that the refunding closed in January.
The top rating reflects the quality of the permitted investment securities - initially State and Local Government Series, or SLGS - and the structure of the escrow, Moody's said.
The new rating affects bonds issued in 1997 that all have optional redemption dates, some on Aug. 1, 2006, and others at the same time in 2008 and 2010. Escrow services are being provided by U.S. Bank NA. Moody's has an A1 underlying rating on San Jose USD's general obligation bonds.
Standard & Poor's rated the $130 million refunding issue AA-minus with a negative outlook in a December report that also affirmed the rating on the uninsured versions of the district's outstanding GOs. At the same time, the agency affirmed its A-plus rating of the uninsured versions of the school district's certificates of participation.
While budget cuts are keeping spending in line with revenues, the issuer's financial reserves have eroded to not much more than the required minimum amount, according to analysts.
"Demographic trends regionally indicate a continued decline in the number of children of school age, in part due to difficulty affording housing," said Standard & Poor's analyst Ian Carroll.
The district expects to lose another 787 students in 2007 and 762 more in 2008. Carroll notes that if enrollment declines crimp revenues enough to keep the district from maintaining its required cash reserve threshold, the issuer's rating may drop in the future.
Fitch Ratings has not issued a rating of the issuer since 2002, when it assigned a AA.
