Moody's Investors Service said it has downgraded the Pocono Mountain School District, Pa.'s underlying general obligation unlimited tax rating to Baa2 from Baa1, and limited tax rating to Baa3 from Baa2.

The limited tax bonds are subject to Special Session Act 1 property tax limitations. The outlook on all underlying ratings remains negative.

The district's Series 2011 bonds benefit from the Pennsylvania School District Fiscal Agent Agreement Intercept Program and carry an enhanced Aa3/stable outlook based on the program.

The remainder of the district's debt benefits from Pennsylvania's Act 150 intercept program, and carries an enhanced rating of A1/stable outlook based on the program. Pursuant to the School Code (Section 6-633), the state is authorized to intercept aid appropriated in the current fiscal year.

The School District Fiscal Agent Agreement Intercept Program is further enhanced by a Fiscal Agent's Agreement, which requires the fiscal agent to notify the Secretary of Education if the district has not made sinking fund payments 15 days prior to debt service due dates.

The downgrades incorporate the district's distressed financial position, characterized by a large accumulated fund balance deficit and the ongoing challenges the district faces to achieving structurally balanced operations.

The rating also reflects a sizeable tax base with average wealth levels and a relatively high debt burden.

The negative outlook reflects the district's continued financial strain and our belief that the district faces considerable challenges to balancing its budget and rebuilding reserves to even narrow positive levels. The negative outlook also reflects potential difficulties the district could face in maintaining market access for its annual cash flow borrowing.

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