Moody’s downgrades Aberdeen School District tax bonds rating; outlook negative

A new report from Moody’s Investors Service downgraded the Aberdeen School District tax bonds to a negative outlook.

This rating is in regards to approximately $12.8 million in rated debt outstanding.

In the ratings report from Moody’s it states that the downgrade from an A1 to an A2 rating reflects the district’s “weakened and very thin financial reserves and liquidity exacerbated by a declining enrollment trend that is 5% below budget as of September 2020”.

Moody’s says that the negative outlook reflects the substantial challenges the district will face balancing its budget given declining enrollment.

“The district’s thin reserves will be more vulnerable to financial stress over the next two years with unexpected revenue declines or expense growth.”

The report does state that the change is likely due to the ongoing coronavirus pandemic.

The report also states that while the district has taken steps to balance its budget, Moody;s expect this to be difficult given its already limited operating flexibility.

The district currently operates in a distance learning model and has received $1.4 million in CARES Act funding to support additional operational costs during the pandemic.

The rating is also constrained by a modestly sized and rural tax base and below average socioeconomic measures.

Debt burden is moderate while pension liabilities are low.

The downgrade in the rating is not a permanent change for the district, and Moody’s states that there are a number of changes that could lead to an upgrade or another downgrade.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

• Sustained and substantial growth of financial reserves and liquidity
• Material growth in the district’s tax base
• Improvement in resident income levels

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

• Continued erosion of the district’s financial reserves and liquidity
• Significant contraction in the district’s tax base
• Substantial growth in debt or pension liabilities

The credit ratings by Moody’s are opinions made by the company based on their interpretation of “future credit risk of entities, credit commitments, or debt or debt-like securities”.

Moody’s is a bond credit rating business that provides international financial research on bonds issued by commercial and government entities.

This downgrade was based on based on methodology from the US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443.

Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of their methodology.