Moody's Investors Service said it has downgraded to Baa3 from A1 the rating on the Spencer-East Brookfield Regional School District, Mass.'s $4.35 million long-term general obligation debt and placed it under review for downgrade.

The outstanding debt is secured by a general obligation of the district; however debt service is expected to be paid from assessments to the member towns of Spencer (GOs rated Aa3) and East Brookfield.

The downgrade to Baa3 from A1 reflects the district's substantially reduced financial position and deteriorated financial flexibility compounded by weak management of the 2013 budget, which will lead to a depletion of liquidity at fiscal year-end and reliance on cashflow borrowing to pay debt service in the coming months. The rating also incorporates the moderate tax base with favorable socioeconomic indicators and low debt burden.

The review for downgrade reflects the district's need to obtain financing by April 15 to pay for debt service due May 1. The district is also awaiting approval of state legislation authorizing the issuance of deficit financing notes secured by the Massachusetts Qualified Bond Program.

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