Moody's Investors Service has downgraded to Aa3 from Aa2 the rating on the Cincinnati School District's Series 2006 certificates of participation, of which $105.8 million remains outstanding.

Debt service on the Series 2006 COPs is secured by base rental payments of the Cincinnati City School District (GO rated Aa2, stable), which are subject to annual appropriation.

The annual rental payments have been made and are expected to continue to be made with payments from the city of Cincinnati (GO rated Aa2, negative) and Hamilton County (GO rated Aa2, negative), per existing finance agreements.

Combined debt service on the COPs and the district's Series 2005B general obligation bonds (which carry a pledge of city and county payments) was structured such that the combined payments in lieu of taxes (PILOTs) from the city and county provide sum sufficient coverage through final maturity of the COPs in 2032.

The downgrade to Aa3 is based primarily on the recent downgrade of the city of Cincinnati's GO rating to Aa2, along with the revision of the city's outlook to negative.

Though the Series 2006 COPs are subject to annual appropriation by the district, the rating had remained equivalent to the district's Aa2 GO rating given the weighted average credit quality of the city and county prior to the downgrade of the city's GO rating, as well as the inability of the district to utilize the PILOTs for general operating purposes.

These provisions mitigate the risk of non-appropriation. Following the downgrade of the city's rating, the weighted average credit quality of the sources supplying the PILOTs used for debt service is weakened.

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