Moody's Investors Service yesterday upgraded the Abington Heights, Pa., School District's general obligation rating to A1 from A3, citing strong financial operations that have resulted in multi-year surpluses and ample reserve levels.
The upgrade in the Pennsylvania school district's rating is in conjunction with its upcoming $11 million GO bond refunding pegged to go to market within the next few months.
The AHSD's double-notch upgrade is a "reflection of very well managed, strong financial operations," said Moody's associate analyst John Medina.
The district's improvement of its financial position includes a significant increase of available reserves to $16.1 million - or a "substantial" 38.7% of general fund revenues - in 2007, up from $1.9 million - or an adequate 6% of general fund revenues - in fiscal 2002, Medina said.
Medina also noted that for the last five fiscal years, the AHSD has experienced operating surpluses.
"Management has been on top of their expenditures," Medina said. The district has "no intention to use any significant portion of these reserves in the very near future," which provides "additional financial flexibility."
"We're absolutely thrilled with the upgrade," said superintendent Michael Mahon. "We've worked really hard at controlling our costs and spending."
In the past few years, the AHSD has eliminated some positions in the school district to save on salary costs, renegotiated on transportation costs for school buses, and has maintained a self-funded insurance plan for its employees, bringing savings to the district, Mahon said. He also noted that the district was able to improve its financial standing in the past couple years without raising taxes on the district's taxpayers.
"We've really made an effort to be fiscally responsible," Mahon said. "The sum total of small efforts has been significant improvements."
Financial Security Assurance will insure the bonds for the upcoming refunding.
"We still have to incur costs of 36 basis points to have a bond insurer come in to insure this offering when there's just no possible way that we could default," Mahon said.
Because the district's rating is not a Aa rating, he said insurance is needed in the market. Still, it has its own taxing authority, and Pennsylvania has an intercept policy where the commonwealth would redirect pre-existing subsidies for the school district to pay the bonds if the AHSD was close to defaulting.
The district decided to do the refunding because the rates currently are sufficient to produce more than 3% net present-value savings, said managing director Ray Lowery of PNC Capital Markets LLC, the senior manager for the deal.
RBC Capital Markets is the co-manager. Pepper Hamilton LLP is bond counsel. The upcoming refunding consists of two series, the $3.6 million Series A and the $7.4 million Series B. While the Series A could be refunded immediately, Series B can be refunded no earlier than April 15.
"We're watching the market for the opportune time," Lowery said, adding that the refunding for both series should save the AHSD about $350,000. The final maturity of the bonds is 2021. q
