Moody's Investors Service has downgraded the school district enhancement programs of the commonwealth of Pennsylvania (Aa3 negative) to Baa1, and changed its approach to rating pre-default enhancement programs in the commonwealth.
As a result of this action, the enhanced rating on any Pennsylvania school district bond will be the district's underlying rating plus one notch, subject to a floor rating of B1 and a ceiling rating of Baa1. This approach applies both to school district bonds enhanced on a post-default basis (meaning transactions not designed to ensure debt service is paid on time) and on a pre-default basis (meaning transactions for which a structure is designed to ensure debt service is paid on time). This action resolves a review for downgrade first initiated on September 10.
The B1 floor on the enhanced ratings communicates its expectation for full recovery for all Pennsylvania school districts, even in instances when the enhancement programs fail to prevent default in the first place.
As a result of this action, most enhanced ratings in Pennsylvania are downgraded, either because they are at the new Baa1 cap (downgraded from A3) or because they formerly were rated at the pre-default programmatic rating and are now rated under the bottom-up approach. There are 10 exceptions, which are districts whose post-default ratings were already under what is now the Baa1 cap. For these 10 districts, the enhanced ratings are confirmed.
