Standard & Poor's Rating Services said it lowered its issuer credit rating on Holly Area School District, Mich.'s general obligation debt outstanding to A-minus from A.
The outlook is stable.
"The downgrade reflects what we view as the district's weakened financial position in which the district has used its reserves for five straight fiscal years and projects to use nearly $686,000 for fiscal 2014, which ends June 30," said Standard & Poor's credit analyst Errol Arne.
The increase in the usage is due to about 20 less students than initially projected for the 2013-2014 school year. In total, the district has used about $4 million of reserves since 2009 and the expected unassigned general fund balance as of June 30, 2014, is $211,000 or approximately less than 1% of operating expenditures. Management has adopted a balanced budget for 2015.
The stable outlook on the ICR reflects the opinion that the district will have at least balanced operations and will make the necessary adjustments to maintain at least $200,000 of reserves, with the expectation to add to its reserve balance in the general fund for the next two years.
The rating agency does not expect the rating to change during the two-year outlook period but if management is unable to navigate its way through any unexpected decrease in enrollment and reserves are materially affected, it could lower the rating.
If the district is able to materially add to its reserve balance over the next two years and S&P determines it's sustainable, it could raise the rating, although that is most unlikely to occur, according to the agency.
