BRADENTON, Fla. - Standard & Poor's lowered its underlying rating to BB-plus from BBB on the general obligation bonds of the Dublin School District, Ga., citing its structural budget imbalance.

S&P on Feb. 20 also lowered its appropriation rating on the district's lease revenue bonds, which were issued by the city of Dublin and the Laurens County Development Authority, to BB from BBB-minus. The outlook is stable.

"The downgrade reflects our opinion of the district's structurally imbalanced operations, failure to carry out its deficit elimination plan according to the original timeline, weak liquidity position, and exposure to adverse economic conditions that could lead to inadequate capacity to meet its financial commitment," said analyst Apple Lo.

The stable outlook reflects the risks related to Dublin School District's credit profile, including the district's exposure to non-remote contingent liability risk to a bank loan.

The school district has about $700,000 of a bank loan outstanding that contains certain events of default, including a material adverse change clause that could result in immediate principal acceleration if triggered, S&P said.

"The loan matures at the end of March 2015 and the district is confident about paying off the amount before the end of February on the receipt of property tax revenues," the rating agency said.

The district had $21.14 million in GO and revenue bonds outstanding as of June 30, 2012, according to the latest audit from the Georgia Department of Audits and Accounts.

Christi Thublin, the assistant superintendent for finance and business operations, did not comment on the rating downgrade in an email to The Bond Buyer Feb. 23.

When asked why recent audits are not available, Thublin said that the audits for fiscal years 2013 and 2014 are being prepared, and would be posted on the Municipal Securities Rulemaking Board's EMMA filing system as soon as they are available.

The audits were delayed because of findings in Dublin's 2012 audit concerning the condition of the district's records, and a delay in receiving the 2013 financial statements, said Tommy Harp, deputy director of Georgia's education audit division. Auditors found a number of material and significant deficiencies in the district's internal control over financial reporting in 2012.

While Standard & Poor's lowered the underlying GO rating, it also affirmed its AA-plus program rating and stable outlook on Dublin's existing GO bonds due to participation in Georgia's voluntary state-aid intercept program.

The non-investment grade underlying rating reflects the district's structurally imbalanced operations and negative fund balance for at least four consecutive years, and management's inability to implement credible solutions to balance its budget as the unaudited results for fiscal 2013 were $1.5 million worse than projection, S&P said.

"Standard & Poor's could lower its rating further if the provisions related to the district's short-term borrowings cause a liquidity crunch for the district," the agency said. "Credit improvements depend on the district's ability to demonstrate a track record of achieving structurally balanced operations and resolving its non-remote contingent liquidity risk."

Dublin is in Laurens County, about 136 miles southeast of Atlanta. The school district operates six schools, in addition to a virtual school, that served 2,997 students in the 2012-2013 school year.

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