New York, December 05, 2012 -- Moody's Rating
Issue: School Building Refunding Revenue Bonds, Series of 2013; Enhanced Rating: Aa3; Sale Amount: $4,365,000; Expected Sale Date: 12-06-2012; Rating Description: Lease Rental: Appropriation
Issue: Qualified Zone Academy Bonds, Taxable Series of 2012; Enhanced Rating: Aa3; Sale Amount: $2,823,000; Expected Sale Date: 12-06-2012; Rating Description: Lease Rental: Appropriation
Issue: School Building Revenue Bonds, Series of 2012; Enhanced Rating: Aa3; Sale Amount: $1,320,000; Expected Sale Date: 12-06-2012; Rating Description: Lease Rental: Appropriation
Moody's Investors Service has assigned a Aa3 enhanced rating (KSDE) with a negative outlook to Boyle County (KY) School District Finance Corporation's$4.365 million School Building Refunding Revenue Bonds, Series 2013; $2.823 million Qualified Zone Academy Bonds, Taxable Series of 2012; and $1.32 million School Building Revenue Bonds. Series 2012. Proceeds from the $4.635 million School Building Refunding Revenue Bond sale will be used to refund certain maturities of the corporation's Series 2005 bonds for a net present value savings. Proceeds from the $2.832 million Qualified Zone Academy Bonds and $1.32 million School Building Revenue Bonds sales will be used to renovate the middle school.
The rating reflects Moody's assessment of the additional security provided by the Kentucky School District Enhancement Program (KSDE). The negative outlook on the enhanced rating reflects the negative outlook on the commonwealth's long term rating.
The KSDE program demonstrates generally average to strong state commitment and program history as defined by the first factor of the intercept methodology published February 2008. The funds available for intercept include any unexpended General Fund amounts appropriated by the commonwealth and allotted to the school district for the current biennium and allotments to be made to the local school district in future budget bills. The ability to advance funds crosses fiscal years and thus we do not focus on current year coverage levels.
State oversight of the program is strong as school district operating budgets, long-term facilities plans and debt issuances must be reviewed and approved by the state Department of Education (DOE). The state's oversight is further reflected in the DOE's ability to access school district financials on a real time basis and a track record of state intervention in under-performing schools. State statute is silent with regard to commitment to bondholders; there is no covenant not to repeal, revoke, rescind, modify or amend the statutory authority for the intercept. The expectation of continued state support is strong as the intercept program benefits school capital financings, an essential public purpose. Though the program has never been utilized, the state has demonstrated strong commitment to school capital financings and the intercept program's mechanics should result in full and timely payment of debt service, if the program were to be invoked.
The KSDE program demonstrates generally average to strong program mechanics, the second factor of the intercept methodology. Intercept mechanics are established in state statute (KRS 160.160) and an administrative policy document. The mechanics of the intercept program require lease rental payments be made directly to the paying agent 10 days prior to a debt service due date and direct the paying agent to notify DOE if payment of principal or interest has not been received three days prior to the date on which the debt service payment is due. Upon notification by the paying agent, DOE must forward, from available funds (as described above), the amount due to the paying agent. In the event that the School Facilities Construction Commission (SFCC), an instrumentality of the commonwealth, has entered a participation agreement for a set percentage of debt service on a particular bond series, the portion of debt service to be paid by SFCC is required to be sent directly to the paying agent on the day debt service is due. The agreement entered into with SFCC requires SFCC to notify the school district as well as the original purchaser of the bonds 60 days prior to the end of a biennium if SFCC is not appropriating for their previously agreed upon percentage of debt service in the coming biennium. In this case, the school district would, as per the lease, appropriate for the gross debt service coming due and KSDE program mechanics would apply. Historically, continuing spending resolutions have been adopted in the absence of a legislatively approved budget. Moreover, as per 2005 state Supreme Court ruling, once local school district debt has been authorized by the General Assembly related debt service is authorized on a continuing basis. The case also holds that continuing appropriations for public schools, in the absence of a legislatively approved budget, is permitted. Moody's therefore concludes that late budget passage likely will not be a factor placing at risk the availability of funds under the intercept program. Based on the overall assessment of program mechanics described above, Moody's categorizes program mechanics as generally average to strong.
Moody's assigns an enhanced rating to specific financings after an evaluation of two major factors: the sufficiency of interceptable revenues and the transaction structure. This financing rates strong on the criterion of sufficiency (Factor 3 of the rating methodology) due to the stability of state aid payments, the ability to accelerate state aid for intercept, and because, as described above, the ability to advance interceptable funds crosses fiscal years and continuing appropriations for public schools are permitted in the absence of an approved budget.
In addition, this financing also rates average, on Factor 4 of the methodology (Presence of and Role of Fiduciary and Reserve Fund). There is a paying agent who is required to notify the state prior to the debt service payment date if sufficient funds are not available. Reserve funds are not typically utilized to support intercept financings supporting school districts, and there is no reserve fund in the KSDE program.
The principal methodology used in this rating was State Aid Intercept Programs and Financings published in February 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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John Grayson Nichols Associate Analyst Public Finance Group Moody'sInvestors Service, Inc.600 North Pearl Street Suite 2165 Dallas, TX 75201 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Toby Cook Vice President - Senior Analyst Public Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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