Moody's Investors Service said it has downgraded to Aa3 from Aa2 the underlying rating on Gull Lake Community School, Mich.'s general obligation pledge.

The outlook on the district has been revised to stable. The Aa3 rating with stable outlook has been assigned to the district's $5.2 million general obligation refunding bonds, Series 2013A and $9.8 million general obligation refunding bonds, Series 2013B.

Additionally, Moody's assigns a Aa2 enhanced rating with a stable outlook to the Series 2013B bonds based on the bonds qualification with the state of Michigan's (GO rated Aa2/stable outlook) School Bond Qualification and Loan Program (SBQLP).

Post-sale the district holds $41.2 million in outstanding general obligation unlimited tax debt, $17.7 million of which is rated by Moody's.

Debt service on both series of bonds is secured by the district's general obligation unlimited tax pledge. Proceeds of the Series 2013A and Series 2013B bonds will be used to refund a majority of the district's outstanding Series 2003 and Series 2004 bonds, respectively, for significant debt savings.

The downgrade to the Aa3 rating from Aa2 reflects the district's sustained narrow general fund reserves that are expected to decline further in fiscal 2013; a moderately sized tax base in middle west portion of the state with an above average socioeconomic profile; increasing enrollment levels; and moderate debt burden.

The stable outlook on the district rating reflects Moody's opinion that the district's current credit profile is likely to remain consistent with its current rating over the near to medium term. Assignment of the Aa2 enhanced rating with stable outlook is due to the additional security provided by the state of Michigan's School Bond Qualification and Loan Program.

The Michigan Department of Treasury is expected to grant final qualification status to the district's bonds following the sale. The enhancement rating only applies to the Series 2013B bonds as the 2013A bonds do not qualify for the SBQLP enhancement.

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