Moody's Investors Service said it has downgraded to A2 from A1 Gilroy Unified School District, Calif.'s Series 2008 certificates of participation.

Moody's affirmed the Aa3 general obligation bond rating for the district and its Aa3 2011 general obligation bond anticipation notes.

The rating action primarily reflects the district's consistent financial position, large and stabilizing property tax base located in proximity to the Silicon Valley region, and the near-term planned refinancing of $39 million of BANs through a GO bond issuance.

The district's elevated debt burden and limited financial position, reflected in relatively low levels of general fund cash and reserves, are noted as weaknesses.

The downgrade of the COPs to A2 from A1 reflects a one-notch adjustment to align with Moody's standard two-notch differential for essential purpose, fixed asset leases relative to a California issuer's GO bond rating or issuer (GO equivalent) rating.

Moody's said when it downgraded the district's general obligation bond rating to Aa3 from Aa2 on June 8, 2011, the COPs were not downgraded as they should have been.

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