CHICAGO — Six months after an Indiana school district defaulted on bond payments, Standard & Poor's affirmed its A rating on its bonds and removed them from negative CreditWatch.

The rating agency put the Munster School Building Corp. on CreditWatch with negative implications on Feb. 20, after the School Town of Munster missed two bond payments in January due in part to thin cash flow. In addition to missing the payments, the bond trustee failed to notify the state treasurer of the late payment as required by the intercept program that enhances the bonds.

The intercept program is supposed to ensure that the state steps in with sufficient money to cover debt service after a default. In Munster's case, the bond trustee, Peoples Bank, did not notify the state. The district cured the default a few days later by borrowing from a local bank.

On June 26, S&P said it has affirmed its A long-term, enhanced program rating on the building corp. bonds - issued in 2008, 2009, and 2011 - and removed the credit from the negative CreditWatch. The rating agency has an underlying rating of BBB on the school district.

"Our latest rating action is based on our expectation that the bond trustee will fulfill the obligations outlined in the trust indentures securing the bonds and that the program continues to function properly," S&P analyst Anna Uboytseva said in a statement. "Notably, the trustee has made it clear that in the event Munster Schools were to fail to make a lease payment in full or on time, it will immediately notify the state treasurer of the late payment, and make a claim for a state intercept in the amount of the missed payment, as outlined in the trust indentures."

S&P said the trustee's failure to inform the state of the default seemed to be a one-time mistake.

"Following our conversations with the state treasurer and Peoples Bank officials, we determined that this was a one-time event due to a clerical error," Uboytseva said.  

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