Moody's Investors Service said it has downgraded to A3 from A1 the rating on Ludington Area School District, Mich.'s general obligation unlimited tax debt.
Concurrently, Moody's assigned a stable outlook.
The A3 rating and stable outlook apply to $7.2 million of outstanding general obligation debt.
The outstanding bonds are secured by the district's general obligation unlimited tax pledge.
The downgrade to the A3 rating primarily reflects the district's significantly weakened financial position and extremely limited general fund reserves, which have followed multiple years of declines in student enrollment and state aid cuts.
Also incorporated in the current rating is the district's sizeable tax base and limited debt burden.
The assignment of the stable outlook reflects Moody's expectation that the district's deteriorated financial position will stabilize as a result of an estimated general fund surplus in fiscal 2012 and remain consistent with similarly rated entities.
Despite the expected surplus, Moody's notes the district's narrow financial position will continue to be vulnerable to potential state aid cuts and unanticipated enrollment declines, which may put continued pressure on operating revenues.
Additionally, the district will likely continue to rely on short-term cash flow borrowing to fund operations in light of reduced reserve levels. Although these factors may continue to challenge the district in the near-term, Moody's believes the district's credit profile will remain consistent with similarly rated entities.
