Moody's Investors Service had downgraded the rating on San Francisco Community College District's general obligation bonds to A2 from A1 and assigned a negative outlook.
"The downgrade reflects the heightened possibility that the district will lose its accreditation in approximately one year," analysts said in recent report. "Barring intervention from the state, the loss would result in the closure of the district."
The downgrade affects about $358 million of outstanding debt, which is secured by the district's unlimited property tax pledge.
The rating action follows an earlier report from Moody's that called the district's pending accreditation termination a credit negative.
The Accrediting Commission for Community and Junior Colleges, which evaluates institutions in California, Hawaii and U.S. Pacific Islands, recently decided to terminate the district's accreditation, effective July 31, 2014. The decision was based on the district's failure to address deficiencies regarding governance, fiscal management, and financial accountability.
Termination of accreditation would lead to the loss of both state grant funding and Title IVA federal financial aid, which comprise 54% of the district's unrestricted general fund revenue.
Moody's said that the rating could be upgraded if there's a successful appeal and maintenance of full accreditation with no sanctions or if there is material improvement to the district's fiscal position.
The rating could further be downgraded if it loses accreditation or if erosion of its fiscal position continues.
Standard & Poor's also downgraded the rating earlier this month to A from A-plus with a negative outlook.