Moody’s Investors Service has lowered the Duluth, Minn., Independent School District No. 709’s underlying general obligation rating to Baa1 from A1 ahead of its upcoming new-money debt issuance. The agency also assigned a negative outlook to the credit.
The district is preparing to issue $12.8 million of full-term capital appreciation certificates of participation rated Baa1 and $6.3 million of COPs that are subject to appropriation and rated Baa2.
The district’s GO bonds carry higher ratings of Aa2, based on enhancement under a Minnesota state program.
After the sale, the district will have $63.7 million of GO debt, $196.6 million of full-term COPs and $43.3 million of certificates subject to annual appropriation outstanding. The outlook for all the securities remains negative.
Proceeds will finance various improvements to the district’s Myers-Wilkins and Congdon Park elementary schools. The projects are the last schools to be renovated under an ongoing long-term $315 million facilities plan.
“The downgrade … reflects declining enrollment trends; depletion of general fund reserves following seven consecutive years of operating deficits; and weakly-structured high debt levels with additional unplanned borrowings that deviated from the district’s original master facilities plan,” analysts said.
“The negative outlook reflects the very narrow liquidity of general fund reserves and reliance on one-time revenues that have not been fully realized, and excess operating levy that expires in fiscal 2014 that will require voter approval for renewal, further pressuring financial operations,” analysts added.
The city of Duluth was hit with severe flooding following torrential rains, last week with infrastructure damage estimated at $100 million, though school buildings remained open.