Moody's Investors Service has downgraded to Baa2 from A2 the long-term rating on Coatesville Area School District, Pa.'s $180 million of outstanding general obligation debt.

The outlook for the rating is negative.

As part of the same rating action, Moody's has downgraded the district's post-default enhanced rating to A3 from A1. The enhanced rating carries a stable outlook.

Concurrently, Moody's has assigned a Baa2 rating and an Aa3 pre-default enhanced rating with a stable outlook to the district's $25.5 million GO Bonds, Series 2013. As with the district's outstanding GO debt, the underlying rating on the Series 2013 bonds carries a negative outlook.

The bonds are secured by the district's unlimited tax general obligation pledge as debt service is excluded from Special Session Act 1 property tax limitations (Taxpayer Relief Act) that restrict Pennsylvania school districts' ability to increase their property tax millage beyond an annual index without seeking specific exemptions or voter approval.

Proceeds of the current issue will advance refund the district's Series 2004 and Series 2005 bonds for estimated net present savings of $3.4 million, or 5.04% of refunded par. The majority of the savings will be taken between fiscal 2014 through 2016 for budgetary relief, with no extension in maturity.

The downgrade of the district's underlying rating to Baa2 from A2 reflects the persistent structural imbalance in the operating budget over the past six years, which has been the chief contributor to a significant reduction in the district's financial position.

The Baa2 rating also reflects an above-average debt burden and increased reliance on both cash flow and collateralized borrowing to fund ongoing operations. The negative outlook reflects Moody's belief that the district faces significant near-term challenges in its attempts to regain structurally balanced operations and improve its financial position due to rising fixed costs, including pension benefits, and limited revenue growth.

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