CHICAGO -- Moody’s Investors Service Thursday downgraded the Pontiac City School District, Mich. to Caa1 from B3 two days after Gov. Rick Snyder determined the district was in a financial emergency.

Snyder announced Tuesday that he agreed with an independent review team that found a state of financial emergency after a month of examining the district’s books.

The district is located in the city of Pontiac, which has been under state control since early 2009. Located 25 miles outside Detroit, the school district has six elementary schools, a middle school, a high school with a total of 5,500 students.

The district defaulted on a May 1 debt service payment, making it the first public school district rated by Moody’s to default. The missed payment sparked a downgrade from Moody’s, which dropped the already speculative-grade issuer rating to B3 from B1 and its general obligation limited-tax bond rating to Caa1 from B2. The rating remained on review for further downgrade, which came Thursday.

The ratings company now has lowered the issuer rating to Caa1 and its GO limited-tax debt to Caa2. The outlook was revised to negative.

“Moody’s rating represent expected loss, encompassing both default probability and bondholders’ likely post-default recovery,” the ratings firm said in press release on the downgrade, adding that ratings in the Caa category typically have recoveries in the 65% to 95% range.

“The downgrade of the issuer rating to Caa1 reflects the district’s severe cash flow challenges and large backlog of unpaid debts, which make prompt recovery of its missed debt service payment unlikely and place upcoming debt service payments at risk; in particular, bonded debt service will compete against operating expenses that are necessary to maintain operations if cash remains limited,” Moody’s said. “The downgrade also reflects the district’s overall severely challenged finances,” among other factors.

A deteriorating cash position and falling enrollment could continue to challenge the district, leading to the negative outlook, Moody’s said.

District officials have until Aug. 13 to request a hearing to appeal Snyder’s decision. If the financial emergency is eventually affirmed, local leaders can choose one of four options: a consent agreement with the state; an emergency manager; a neutral evaluation process; or a Chapter 9 bankruptcy filing, with the governor’s permission.

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