NEW YORK - Moody's Investors Service has downgraded to C from Caa2 the long-term bond rating assigned to KidsPeace Inc.'s (KidsPeace) $53.7 million of Series 1999 outstanding bonds issued by the Lehigh County General Purpose Authority, PA.

The rating downgrade to C reflects KidsPeace's weakened balance sheet and liquidity measures following operating losses incurred in FY 2011 and FY 2010 and outsized enterprise risk including unmanageable pension funding requirements and reliance on short-term borrowings for liquidity.

The issuer's planned request for a two-year debt service payment suspension from bondholders and pension relief from the Pension Benefit Guaranty Corporation, follows significant cash-flow pressures stemming from fundamental operating challenges are emblematic of a distressed borrower.

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