Three of the five Wisconsin school districts involved in a risky $200 million investment instrument have won rating upgrades following their recent settlement of litigation that releases the districts of their moral obligation to repay notes tied to the investment scheme.
The Waukesha School District was raised to Aa3 from A1 and assigned a stable outlook. The move affects $4.1 million of outstanding general obligation debt.
The rating is supported by the district’s sizeable and affluent tax base, stable financial operations, improving reserve levels, and a manageable debt level.
“The rating also reflects the recent settlement of litigation related to high-risk investments purchased by the district’s Other Post-Employment Benefits Trust,” the report read. “The recent settlement eliminates the uncertainty regarding the district’s responsibility for the liability. As a result of the recent settlement, the district has been entirely and permanently released from its moral obligation to its OPEB Trust.”
Moody’s also upgraded West Allis-West Milwaukee School District to A1 from A2 with a stable outlook on $17.4 million of GOs. The rating reflects the district’s large and affluent tax base, stable financial operations, growing enrollment and a manageable debt burden.
The agency upgraded Whitefish Bay School District to Aa2 from Aa3 with a stable outlook affecting $8.7 million of GO debt. The rating recognizes the districts’ mature and affluent tax base, healthy financial operations with sound reserves, and modest debt levels.
The districts settled their lawsuit in March against Stifel Financial Corp. They alleged the firm misled them on a risky investment in synthetic collateralized debt obligations to help fund their retiree health care benefits. The districts and Stifel also announced they were joining forces to take aim at the product’s arranger, RBC Capital Markets LLC.
Under the pact, Stifel forgave $154 million of notes issued by the OPEB trusts and bought by Depfa Bank. Stifel bought the notes from Depfa last year at a discount, relieving districts of their moral obligation to repay the notes.
Moody’s affirmed Kimberly Area School District’s Aa3 and stable outlook on $35.2 million of GOs. It also affirmed Kenosha Unified School District’s A1 rating on $134 million of GOs while revising its outlook to stable from negative.
