Standard & Poor's Ratings Services said it lowered its long-term rating and underlying rating on Denair Unified School District, Calif.'s general obligation debt one notch to A from A-plus.

The outlook is negative.

The downgrade reflects Standard & Poor's assessment of the district's decreasing average daily attendance and weakening financial operations and available reserves.

The negative outlook reflects the rating service's assessment of the continued uncertainty associated with the district's finances, especially surrounding budget reductions the district expects to implement over the next several months as part of its recovery plan. The negative outlook also reflects Standard & Poor's opinion of the district's reduced financial flexibility and decreasing average daily attendance.

"To the extent the district is challenged to implement components of its recovery plan, which could cause available general fund reserves to deteriorate beyond levels projected in the first interim report, we could lower the rating. We, however, recognize that by implementing budgetary adjustments effective for fiscal 2013, the district has responded to its budget situation quickly," said Standard & Poor's credit analyst Daniel Zuccarello. "To the extent the district successfully implements the additional budgetary adjustments needed to maintain balanced operations and improved reserves that are consistent with state-mandated levels, we could revise the outlook to stable over the outlook's two-year period."

The rating also reflects Standard & Poor's opinion of the district's: access to the broader employment centers of Turlock and Modesto; good-to-strong income and wealth despite its location in an agricultural-based economy with elevated unemployment, and moderate overall debt with no additional debt plans.

Unlimited ad valorem property taxes levied on taxable property in the district secure the GO bonds.

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