Moody's Investors Service said it has downgraded to A1 from Aa3 the general obligation unlimited tax (GOULT) rating of Dearborn School District, Mich.
The rating on outstanding general obligation limited tax (GOLT) debt has been lowered to A2 from A1.
Moody's has assigned the A1 rating to the district's $69.5 million 2014 school building and site bonds Series A and $2.3 million 2014 school building and site bonds Series B. Moody's has also assigned a Aa2 enhanced rating (SBQLP) with positive outlook to the Series 2014A bonds. Both series of bonds are secured by the district's authorization to tax at an unlimited rate and amount to pay debt service.
Per a November 5 referendum, proceeds of the bonds will finance various capital improvements including additions to six of the district's elementary schools. Following the current sale, the district will have $175.6 million of GOULT and $57.5 million of GOLT debt outstanding.
The downgrade to A1 primarily reflects a weakened financial position that, combined with the district's other characteristics, results in an overall credit profile comparably weaker than those rated in the Aa category.
While the district maintains a large full valuation, the strength inherent in the size of the base is offset by a multi-year trend of material depreciation and a considerable degree of economic concentration given the presence of Ford Motor Company's (Baa3 stable) corporate headquarters.
Despite the narrowness of financial reserves, the rating also incorporates management's commitment to controlling costs going forward and the operating benefits of a continuously positive enrollment trend. The rating also reflects an above average debt burden.
The A2 rating on GOLT debt incorporates the lack of both a dedicated levy and authorization to tax an unlimited amount to pay debt service on outstanding GOLT bonds.
The Aa2 enhanced rating with positive outlook is based on the additional security provided by the state's School Bond Qualification and Loan Program (SBQLP). The enhanced rating is equivalent to the state of Michigan's Aa2 general obligation rating and positive outlook. The state's Department of Treasury is expected to grant final qualification upon the sale of the Series 2014A bonds, with preliminary qualification having been granted prior to the November 5 referendum.
