DALLAS — Moody's Investors Service has downgraded the Midwest Del City School District to Aa3 from Aa2 and retained a negative outlook, citing a "substantial reduction in reserves."
The downgrade came ahead of a $13.7 million issue of general obligation bonds that priced Dec. 9, earning yields of 1.75% on 2% coupons maturing in 2019. Hutchinson, Shockey, Erley & Co. won the competitive bid.
"The negative outlook reflects the persistent structural imbalance with financial plans that include budget gaps into fiscal year 2014, and no immediate plans for a return to balanced operations," said analyst Adebola Kushimo.
The district, officially known as Oklahoma County Independent School District 52, is an Oklahoma City bedroom community, serving a population of approximately 77,695.
The local economy is anchored by Tinker Air Force Base, which is the largest employer in the district. Assessed values grew at an average 2.6% annually over the past five years, according to Moody's. In fiscal year 2014, values grew 3.8% to $487 million, a corresponding $4.1 billion in full valuation.
The district ended fiscal year 2012 with a $4.3 million draw on its reserves, more negative than the original expectation of balanced operations, Moody's said.
"The financial picture for fiscal year 2014 remains dim with a budget that reflects a draw of $2.6 million on a budgetary basis," Kushimo said, "reflecting expenditures carried over from the prior year, as well as a base budget increase that includes compensation adjustments."
Following this sale, the district will have $57 million in outstanding authorized debt which will be issued in annual installments through fiscal year 2019 to service the lease revenue debt.
The district issues lease-revenue debt that is later taken out by general obligation bonds, according to Moody's. The district issued $72.6 million of lease-revenue bonds in 2011.
"The retirement of lease revenue bonds is dependent upon future general obligation bonds issuances that mirror the lease revenue annual maturity," Kushimo said. "There is no expectation that the district will be able to pay annual lease revenue bond maturities from cash on hand given limited financial flexibility."
