Moody's Investors Service has downgraded to A2 from A1 the underlying rating and assigned an A2 enhanced rating with a stable outlook to Niagara-Wheatfield Central School District, N.Y.'s $7.7 million general obligation school district refunding bonds, 2012.

The bonds are secured by the district's general obligation unlimited tax pledge. Concurrently, Moody's has downgraded to A2 from A1 the underlying rating on the district's $39.6 million in outstanding parity debt and revised the outlook to negative.

Proceeds from this issue will be used to refund the district's general obligation bonds, Series 2004 for an expected net present value savings of $515,221, or 6.5% of the refunded bonds with no extension of maturity and savings taken over the life of the bonds.

The A2 long-term underlying rating reflects the district's narrowed financial reserves over the past several years, moderately-sized upstate New York tax base, average socioeconomic indicators, and moderate debt burden made more manageable by significant state building aid.

The negative outlook reflects Moody's expectations that the district's financial position will remain strained in the near-term due to limited reserves and recent dependence on cash-flow borrowing to manage operations.

The A2 enhanced rating with a stable outlook is based upon the additional security provisions offered by New York State's Section 99-B school intercept program, which authorizes the state to withhold future allotments of state aid in order to make bond payments in the event of default by the school district. While the program does not ensure avoidance of a pending default or guarantee immediate repayment, Moody's believes it does enhance the potential for recovery upon default and that the cure period is likely to be short.

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