Standard & Poor's Ratings Services has lowered its issuer credit rating (ICR) on LakeVille Community Schools, Mich.'s series 2005 unlimited tax general obligation (GO) refunding bonds to 'A-' from 'A+'. At the same time, we affirmed our 'AA-' enhanced rating on the district's GO debt and assigned our 'AA-' enhanced rating and 'A-' ICR to the district's series 2012A unlimited tax GO school building and site bonds and series 2012B unlimited tax GO qualified zone academy bonds. The outlook on all ratings is stable.

"The downgrade is due to a substantial drop in the district's general fund balance following a string of operational shortfalls," said Standard & Poor's credit analyst John Kenward.

The 'AA-' enhanced rating is based on the qualification of the bonds under the Michigan School Bond Loan Fund program. Section 16 of Article 9 of Michigan's 1963 Constitution created the Michigan School Bond Loan Fund program to provide districts access to funds to avoid a default on qualified debt. Under the program, if a school district fails to meet its debt service obligation for qualified debt, the state treasurer is notified. The treasurer pays the required debt service, and payment to bondholders is uninterrupted. If the balance in the state's loan fund is insufficient to cover obligations, the state is required to make loans from the general fund. Because the fund is an obligation of the state, the guarantee program is rated on par with the state's GO debt.

The 'A-' ICR reflects our assessment of the district's:

Access to employment centers in Oakland and Washtenaw Counties,
Strong income level, and
Moderate debt burden with rapid amortization.
These strengths are partly offset by a declining enrollment trend that results in financial pressure because of dependence on state aid, and a substantial drop in the general fund balance through fiscal 2012.

The stable outlook on the long-term rating reflects the stable rating outlook on Michigan. The stable outlook on the ICR reflects our expectation that the district will return to balanced operations within the two-year timeframe of the outlook and begin to rebuild its reserves. Failure to do so may result in another lowering of the ICR. However, if the district is able to rebuild and maintain its general fund balance at a higher level, then we may raise the ICR.

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