Moody's Investors Service said it has downgraded to Baa1 from A2 the rating on Reed City School District, Mich.'s outstanding general obligation unlimited tax bonds.

A negative outlook has been assigned.

The Baa1 rating and negative outlook apply to $13.4 million in outstanding debt, secured by the district's general obligation unlimited tax pledge.

The downgrade reflects the district's very weak financial position and trend of operational imbalance.

The Baa1 rating also incorporates the district's recent stabilizing student enrollment trend, modestly sized tax base with below average socioeconomic indices, and minimal debt burden with below average principal repayment.

The negative outlook is based on the expectation that the district's financial reserves will remain very limited and could decline further.

Larger than budgeted future enrollment losses or other negative budgetary variances have the potential to lead to further operating deficits, the event of which may result in further downward rating actions.

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