NEW YORK - Moody's Investors Service said it has downgraded to A1 from Aa3 the underlying rating on New Ulm Independent School District No. 88, Minn.’s outstanding general obligation debt in conjunction with the sale of $5 million general obligation alternative facilities refunding bonds, Series 2012A.

Moody's also assigns an enhanced Aa2 rating with negative outlook to the Series 2012A bonds. Post-sale, the district will have $9.9 million in outstanding general obligation unlimited tax debt. A negative outlook has been assigned to the district's outstanding general obligation debt.

The bonds are secured by the district's general obligation unlimited tax pledge. Proceeds of the bonds will refund the district's outstanding general obligation bonds, Series 2004A for estimated net present value savings of 7% of refunded par.

The A1 underlying rating reflects the district's moderately sized agricultural tax base located 90 miles southwest of the Twin Cities; declining enrollment; pressured financial operations with narrow reserve levels; and low debt burden.

The enhanced Aa2 programmatic rating and negative outlook are due to the additional security provided by the state of Minnesota's School District Credit Enhancement Program (MSDE).

The negative outlook reflects the district's strained financial operations with expected additional use of fund balance and uncertainties regarding contract settlements and expenditure reductions.

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