Moody's Investors Service said it has downgraded to Baa1 from A2 the underlying rating on Romulus Community Schools, Mich.'s outstanding general obligation debt and maintained the negative outlook on the rating.
The Baa1 underlying rating and negative outlook have been assigned to the district's 2013 refunding bonds (general obligation unlimited tax).
Moody's has also assigned a Aa2 enhanced rating with stable outlook to the current bonds. The Baa1 underlying rating and negative outlook apply to $11.2 million of post-sale general obligation unlimited tax debt. The district has a total of $41.8 million of general obligation unlimited tax debt outstanding.
Debt service on the current bonds is secured by the district's general obligation unlimited tax pledge. Proceeds will be used to refund the district's outstanding Series 2003 general obligation bonds for expected interest savings.
Assignment of the Aa2 enhanced rating with stable outlook is due to the additional security provided by the state of Michigan's School Bond Qualification and Loan Program. The Michigan Department of Treasury is expected to grant final qualification status to the district's bonds following the sale.
The downgrade of the district's underlying general obligation rating to Baa1 primarily reflects a significantly weak financial position inclusive of management's expectation to close the current fiscal year with a deficit general fund balance.
Also incorporated into the rating is the district's moderately-sized and depreciated tax base located west of Detroit (GO rated Caa1/negative outlook), declining enrollment trend that factors unfavorably into the state revenue formula, and manageable debt burden.
The negative outlook on the district's underlying general obligation rating is based upon the expectation that financial operations will remain pressured going forward due to the district's declining enrollment trend. An inability to sufficiently offset future revenue loss with expenditure reductions will result in further weakening of the district's finances and likely place additional downward pressure on the credit rating.