The Wall Street Transcript from Moody’s press Release | http://bit.ly/1zjrUb3
New York, July 25, 2014
Issue: General Obligation Bonds, Election of 2004, Series J (2014); Rating: Aa2; Sale Amount: $71,435,000; Expected Sale Date: 8/5/2014; Rating Description: General Obligation
Issue: General Obligation Bonds, Election of 2004, Series K (2014) (Federally Taxable); Rating: Aa2; Sale Amount: $7,035,000; Expected Sale Date: 8/5/2014; Rating Description: General Obligation
Issue: General Obligation Bonds, Election of 2005, Series K (2014); Rating: Aa2; Sale Amount: $34,875,000; Expected Sale Date: 8/5/2014; Rating Description: General Obligation
Issue: General Obligation Bonds, Election of 2005, Series L (2014) (Federally Taxable); Rating: Aa2; Sale Amount: $25,125,000; Expected Sale Date: 8/5/2014; Rating Description: General Obligation
Opinion
Moody's Investors Service has assigned an Aa2 rating to Los Angeles Unified School District's (CA) General Obligation Bonds, Election of 2004, consisting of Series J (2014) - $71.435 million and Series K (2014) (Federally Taxable) - $7.035 million; and General Obligation Bonds, Election of 2005, consisting of Series K (2014) - $34.875 million and Series L (2014) (Federally Taxable) - $25.125 million. The general obligation bonds are secured by an unlimited property tax pledge of the district. The Series J (2014) bonds will be used to finance the acquisition of school technology. The tax-exempt Series K (2014) bonds will be used to defease certain outstanding Certificates of Participation (COPs), while the federally taxable Series K (2014) bonds will be used to make a contribution to the district's OPEB Trust Fund. The federally taxable Series L (2014) bonds will be used to make an additional contribution to the district's OPEB Trust Fund.
We have also affirmed the Aa2 rating on the district's outstanding parity general obligation bonds totaling approximately $10.2 billion and the A1 rating on the district's Moody's-rated, lease-backed obligations totaling $331.0 million.
RATING RATIONALE
The Aa2 rating reflects the district's exceptionally large and highly diverse tax base within the Los Angeles Metropolitan area that should continue to increase in value in the near-term. The tax base will likely continue to grow at average historical rates as the ongoing economic recovery continues to fuel job growth and the local housing market. Reflected in the rating is the district's socioeconomic profile that is slightly below national averages and poses some credit weakness in light of the district's large amount of debt outstanding.
Important to the Aa2 rating is the district's management strength and demonstrated ability to guide the district through periods of revenue uncertainty and severe state budget challenges. District reserves increased somewhat during the economic downturn, although reserves remain below-average for the rating category and somewhat weaken the district's credit profile. The district will continue to face financial challenges due to its dependence on cyclical states revenues. The district will likely see significant increased revenue from the state in the coming fiscal years, which we feel the district will manage to maintain reserves at levels consistent with the rating category for the near- to medium-term.
The district has an unusually high debt burden and a substantial amount of authorized, but unissued, general obligation debt remaining. The district's debt profile poses the greatest credit weakness for the rating. We feel, however, that the district's management and tax base strengths partially offset the risks posed by the district's debt portfolio.
The general obligation rating reflects the strength of the voter-approved, unlimited property tax pledge securing the bonds and the well-established levy and collection history for the debt service payment. The county rather than the district levies, collects, and disburses the district's property taxes, including the portion constitutionally restricted for debt service on general obligation bonds.
The A1 lease supported obligations are secured by standard, California abatement leases. The two notch distinction between the general obligation rating represents the weaker security pledge for lease-backed obligations and the additional risk to creditors from the district's financial, operational, and economic conditions compared to the more secure general obligation pledge.
The outlook on the district's long-term ratings is stable. The stable outlook reflects the district's demonstrated ability to preserve its financial position through challenging economic and financial cycles. The district's finances will likely benefit from the new state funding formula for schools. Any significant erosion of the district's relatively narrow reserves or material increase in debt issuance will be a credit negative.
STRENGTHS
- -Large, highly diverse local economy
- -Exceptionally large, highly diverse, and relatively stable tax base
- -Well managed financial operations and conservative budgeting
CHALLENGES
- -High debt burden and existing authorization for significant amount of additional debt
- -Below average reserve levels
- -Below-median socioeconomic profile for the rating category
- -Some uncertainty surrounding future pension and OPEB obligations that could increase the district's budgetary burden
WHAT COULD MOVE THE RATING-UP
- -Sustained improvement in district reserve levels
- -Significant socioeconomic improvement
WHAT COULD MOVE THE RATING-DOWN
- -Trend of declining reserves
- -Narrowing of liquidity
- -Significant deterioration in socioeconomic measures
- -Protracted decline in assessed value
- -Material increase in debt burden
- -Moody's changed opinion on pension and/or OPEB liabilities
RATING METHODOLOGIES
The principal methodology used in this rating was US Local Government General Obligation Debt published in January 2014. An additional methodology used in the lease revenue rating was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
| Christian Richard Ward | Andrea Unsworth | Releasing Office: |
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