Moody's Investors Service said it downgrades to Aa3 from Aa2 the rating on Placentia-Yorba Linda Unified School District, Calif.'s general obligation bonds outstanding in the approximate amount of $281.2 million.
The ad valorem bonds are secured by the district's unlimited property tax pledge. Concurrently, the district's certificates of participation outstanding in the approximate amount of $109.7 million were downgraded from A1 to A2.
The downgrade primarily reflects the district's extremely narrow liquidity and weak reserves brought on by state funding deferrals and year-over-year deficits.
While the funding environment for the district is expected to improve slightly due to increasing enrollment and a reduction in funding deferrals from the state, the district has been unable to balance financial operations without drawing down reserves.
The weak reserves and liquidity are expected to remain narrow, limiting the district's financial flexibility. the rating also incorporates the district's large, stable tax base, above average residential wealth levels and a manageable debt burden.
The GO rating also reflects the strength of the voter-approved, unlimited property tax pledge securing the bonds and the well-established levy and collection history for the debt service levy. This supports the credit quality of these bonds, somewhat offsetting the risk of any future financial weakness.
The county rather than the district levies, collects, and disburses the district's property taxes, including the portion constitutionally restricted to debt service on general obligation bonds.
