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Colonial School District, PA -- Moody's assigns Aaa issuer rating to Colonial School District, PA; affirmed the district's Aaa GOULT & GOLT ratings; outlook stable

·13 min read

Rating Action: Moody's assigns Aaa issuer rating to Colonial School District, PA; affirmed the district's Aaa GOULT & GOLT ratings; outlook stableGlobal Credit Research - 12 Feb 2021New York, February 12, 2021 -- Moody's Investors Service has assigned a Aaa issuer rating to Colonial School District, Pennsylvania. Moody's also assigned a Aaa underlying rating to the district's $31.4 million General Obligation Bonds, Series A of 2021, and a Aa2 underlying rating to the district's $7.7 million School Revenue Bonds, Series B of 2021. Concurrently, Moody's has affirmed the Aaa underlying rating on the district's general obligation unlimited tax (GOULT) and general obligation limited tax (GOLT) bonds. Following the upcoming issuance, the district will have $16 million of rated GOULT bonds, $127 million of rated GOLT bonds, and $8 million of non-lease annual appropriation bonds. The outlook remains stable.The pledge supporting the majority of the district's rated general obligation debt, including the Series A of 2021 bonds, is limited tax based on the limited ability of Pennsylvania school districts to increase their property tax levy above a preset index. The pledge supporting the Series B school revenue bonds is subject to appropriation.RATINGS RATIONALEThe Aaa issuer rating, which reflects the district's standalone credit quality and ability to repay debt and debt-like obligations, incorporates a strong and affluent local economy, a growing enrollment trend, and a strong academic profile. The rating also considers the district's healthy financial position, supported by conservative budgeting, a willingness to increase the property tax levy, and strong operations despite significant capital outlays. Moreover, the rating incorporates the above average long-term liabilities, but modest fixed costs.The Aaa GOULT and GOLT ratings are equivalent to the Aaa issuer rating given a pledge of the district's full faith and credit, as well as its power to levy ad valorem taxes on all taxable property within the district. The absence of distinction between the GOULT and GOLT ratings reflect Pennsylvania school districts' ability to apply for exceptions to the cap on property tax increases in order to cover debt service, and the Commonwealth's history of granting such exceptions.The Aa2 rating on the district's School Revenue Bonds, Series B of 2021 is two notches below the issuer rating. As the bonds are being issued to finance a swap termination payment, we deem them to be less essential in nature. The notching reflects the risk of non-appropriation, as well as the lack of a leased asset or any remedy for bondholders in the event of non-appropriation.RATING OUTLOOKThe stable outlook reflects the expectation that the district's financial position will remain strong, despite projected draws in fiscal 2021 and 2022, given management's history of conservative budgeting and demonstrated willingness to increase the property tax levy.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Not ApplicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Material decline in fund balance or cash- Deterioration of economic indicators- Significant increase in long-term liabilities, fixed costs, or erosion of capital assets- Downgrade of the issuer rating (GOULT, GOLT, and non-lease annual appropriation ratings)LEGAL SECURITYThe district's GOULT debt is secured by its unlimited tax pledge, as the bonds were issued to refund debt that was originally incurred prior to the 2006 implementation of Act 1.The district's GOLT debt, including the Series A of 2021 bonds, is secured by its limited tax pledge, which is subject to the limits of Pennsylvania's Act 1 "Taxpayer Relief Act."The Series B of 2021 bonds are limited obligations of the district subject to appropriation and are not, directly or indirectly, an obligation, moral or otherwise of the district.USE OF PROCEEDSProceeds from the issuance of the Series A of 2021 bonds will be used to fund construction of the district's New Colonial Middle School project.Proceeds from the issuance of the Series B of 2021 bonds will be used to fund the termination payment of an interest rate hedge related to the Series A of 2021 bonds.PROFILEThe district is located in suburban Montgomery County, PA (Aaa stable), approximately 15 miles northwest of Philadelphia (A2 stable), serving around 44,000 residents in the Borough of Conshohocken and the townships of Plymouth and Whitemarsh (Aaa stable). The district provides kindergarten through twelfth grade education to approximately 5,200 students, with facilities including five elementary schools, one middle school, and one high school.METHODOLOGYThe principal methodology used in these ratings was US K-12 Public School Districts Methodology published in January 2021 and available at http://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. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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. Jose Cavazos Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Tatiana Killen Additional Contact PF General Administration JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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