Moody's Investors Service said it has downgraded the Penn Hills School District, Pa.'s general obligation underlying rating to Ba3 from Baa1.
Concurrently, it has downgraded the district's enhanced rating to Ba1 from A2. The ratings are under review for possible downgrade. The rating actions affect $53 million outstanding bonds.
The downgrade of the underlying rating to Ba3 from Baa1 reflects the rapid and severe deterioration of the district's financial position and lack of liquidity to meet current fiscal year obligations, potentially including debt service, without obtaining emergency cash flow borrowing.
The rating also incorporates the suburban Pittsburgh (A1 positive) tax base, budgetary pressures from charter school enrollment, a high debt burden and heavy budgetary impact from increasing pension contributions.
The enhanced rating downgrade to Ba1 from A2 reflects the bottom-up approach to assigning the enhanced rating of up to two notches above the underlying rating as long as there is sufficient state aid coverage for debt service. The rating also represents the possibility of Penn Hills having to rely on the state aid intercept mechanism to make its April 1, 2015 debt service payment, possibly on a post-default basis.
