Coast Uni Sch Dist Sch Fac Imp Dist No. 1, CA -- Moody's upgrades Coast Unified School District, CA's and SFID No. 1's GOULT to Aa2; assigns issuer rating of Aa3

Rating Action: Moody's upgrades Coast Unified School District, CA's and SFID No. 1's GOULT to Aa2; assigns issuer rating of Aa3Global Credit Research - 01 Apr 2021New York, April 01, 2021 -- Moody's Investors Service has assigned an issuer rating of Aa3 to Coast Unified School District, CA (district). The issuer rating reflects the district's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. Concurrently, Moody's has upgraded to Aa2 from Aa3 the rating on the district's and Coast Unified School District School Facilities Improvement District No. 1's (SFID) outstanding general obligation unlimited tax (GOULT) bonds. The district and SFID have $1.8 million and $7.1 million in outstanding GOULT debt, respectively. This action concludes a review with direction uncertain initiated on January 26, 2021 in conjunction with the release of the US K-12 Public School Districts Methodology.RATINGS RATIONALEThe Aa3 issuer rating reflects the district's deep and growing entrenchment in community funded status, which aligns its revenue growth with increases in property tax revenues as opposed to enrollment levels. Supported by its favorable location located in San Luis Obispo County along the central California coast, the district's economy will continue to expand, with strong assessed valuation (AV) per capita and income levels that will remain consistent with the US median. The rating also incorporates management's conservative fiscal practices with an adopted reserve policy, resulting in sound and consistent reserve levels. The district's elevated leverage but manageable fixed costs are also factored into the rating.The Aa2 rating on the school district's GOULT bonds is one notch higher than the district's issuer rating. The one notch distinction reflects California school district GO bond security features that include the physical separation through a "lockbox" for pledged property tax collections and a security interest created by statute.The Aa2 rating on the SFID's GOULT bonds reflects these same security features as well as the sizeable tax base of the SFID, which represents approximately 65.2% of the district's overall AV with no significant taxpayer concentration.RATING OUTLOOKOutlooks are typically not assigned to local governments with similar amounts of debt.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Significant improvement in resident income levels- Reduction in leverage especially unfunded pension liabilitiesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Deterioration in the district's finances including reserves and liquidity- Loss of community funded statusLEGAL SECURITYThe GOULT bonds are secured by the levy of ad valorem taxes, unlimited as to rate or amount, upon all taxable property within the district or SFID, as applicable. The portion of the levy restricted for debt service is collected, held, and transferred directly to the paying agent by San Luis Obispo County on behalf of the district and SFID.PROFILELocated in San Luis Obispo County along the central California coast, the district encompasses the community of Cambria and the Hearst Castle within its tax base, both of which are popular tourist attractions. Cambria, a small coastal community, is also near the Paso Robles wine region, which features relatively high property values. The district serves approximately 536 K-12 students as of fiscal 2021, a relatively low enrollment size for a California elementary school district. While this figure is down around 50 students from the prior year, for community funded districts, loss in enrollment does not result in the loss of revenues.METHODOLOGYThe principal methodology used in these ratings was US K-12 Public School Districts Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1202421. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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