Fitch Ratings last week revised its outlook to negative on the Ohio School Foundation’s credit enhancement program in light of the rating agency’s recent move to revise its outlook on the state’s general obligation debt to negative.
Fitch continues to rate the school program AA and the state’s GOs AA-plus.
The credit program is intended to enhance the marketability of a district’s bonds — through a higher credit rating — as a participating district pledges its School Foundation payments against its debt if the district is unable to make its payments.
Participants must be approved by the state Department of Education and Office of Budget and Management. Program requirements are strict and include 2.5 times coverage of maximum annual debt service by state foundation aid, Fitch analysts said.
The requirements became stricter last year with the passage of a regulatory change that requires debt coverage calculations be based only on the unrestricted portion of state foundation aid.
Fitch revised its outlook to negative from stable on Ohio’s GO debt in mid-December. The move was based largely on ongoing economic weakness, which is likely to continue. Dwindling state revenue contributed to the action.