Moody's Investors Service said it has downgraded to Baa1 from Aa3 the underlying rating on Pinckney Community School District, Mich.'s general obligation tax pledge.

Outlook on the district remains negative. The Baa1 rating and negative outlook apply to $47.7 million in outstanding rated general obligation debt.

The outstanding bonds are secured by the district's general obligation unlimited tax pledge.

The downgrade to the Baa1 rating is based on the district's narrow preliminary audited fiscal 2012 general fund ending balance, with a significant deficit balance budgeted for fiscal year-end 2013.

Additionally, district enrollment continues to decline steadily, a trend which is not expected to improve, affecting per-pupil based state aid revenues.

Also incorporated in the rating is the district's medium-sized, depreciating tax base located in southeast Michigan (GO rated Aa2/stable outlook); its residential nature with above average socioeconomic profile; and its elevated debt profile with reliance on short-term borrowing and the state of Michigan's revolving loan fund to ensure cash flow for operations and to make debt service payments, respectively.

The negative outlook reflects the multi-year timeline that it will likely take to return the district to positive general fund reserves, following the expected deficit at year-end fiscal 2013.

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