Moody's Investors Service said it has downgraded to Aa3 from Aa2 Fayette County School District Finance Corporation, Ky.'s lease revenue rating.

The corporation's outlook is negative. Moody's assigned a Aa3 rating and negative outlook to the corporation's $54.6 million school building refunding revenue bonds, Series 2013A and $35.5 million school building refunding revenue bonds, Series 2013B.

The Aa3 rating and negative outlook affects $395.7 million in outstanding lease revenue debt inclusive of the current offerings. Proceeds from the Series 2013A bonds will fund renovations at four of the district's existing school facilities.

The Series 2013B bonds will refund certain maturities of the districts' outstanding Series 2009A bonds for an estimated 5% net present value savings of the refunded bonds with no extension of original maturity.

The bonds are secured by lease payments from the Fayette County School Board of Education ("Fayette County School District") from any legally available revenues, under an automatically renewable, annually terminable lease contract.

The bonds are additionally secured by a non-foreclosable statutory mortgage lien on the facilities.

The downgrade to Aa3 reflects the district's weakened financial position due to a substantial erosion of its general fund balance beyond expectations.

The Aa3 rating also incorporates the district's sizable tax base and institutional presence by the University of Kentucky (revenue Aa2 stable), elevated debt burden with plans for additional near term borrowing, and satisfactory legal mechanics of the lease contract which provide adequate bondholder security.

The negative outlook reflects a trend of weakened reserve levels.

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