CHICAGO — The Sterling, Ill., Park District is teetering on the brink of junk bond status as it struggles with limited liquidity to deal with its fiscal pressures.

Standard & Poor's on Feb. 9 lowered the district's general obligation alternate revenue source bond rating to BBB-minus from BBB. The outlook is stable.

"The downgrade reflects our view of the district's limited internal liquidity, coupled with the use of alternative financing instruments that include what we consider permissive events of default that could lead to the immediate acceleration of all principle and interest accrued thereon," said Standard & Poor's analyst Scott Nees.

"We understand that at certain points during its fiscal year, the district would not have sufficient cash on hand to cover an acceleration," Nees added.

The district annually issues short-term limited-tax bonds to supplement its cash levels and meet its debt service obligations. In recent years, maximum annual debt service coverage on the district's alternate revenue source bonds, excluding short-term bond proceeds, would have been insufficient to meet debt service in the event of a delayed sale.

The rating agency warned that it does not believe the district would have sufficient funds to cover its Dec. 15 debt service payment in the event of a delayed short-term sale. The rating agency called that factor a credit weakness.

The rating reflects the district's manufacturing and service-centered economy, flexibility on program driven revenues and expenditures, and a low to moderate debt burden that benefits from rapid amortization as a well as low liquidity, low reserves and the use of alternate financing instruments.

"The stable outlook reflects our expectation that the district will maintain structurally balanced operations and adequate cash for budgetary contingencies," said Nees.

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