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Gilroy Unified School District, CA -- Moody's assigns Aa3 to Gilroy Unified School District, CA's GO bonds and assigns A1 issuer rating; outlook stable

·14 min read

Rating Action: Moody's assigns Aa3 to Gilroy Unified School District, CA's GO bonds and assigns A1 issuer rating; outlook stableGlobal Credit Research - 16 Feb 2021New York, February 16, 2021 -- Moody's Investors Service has assigned an A1 issuer rating to Gilroy Unified School District, CA and assigned a Aa3 rating to the district's $94.7 million General Obligation Bonds, Election of 2016, Series 2021 and $31.4 million General Obligation Refunding Bonds, Series 2021 (Federally Taxable). Concurrently, Moody's has affirmed the Aa3 rating on the outstanding general obligation (GO) bonds and A2 rating on the outstanding certificates of participation (COPs), affecting about $274.7 million and $24.2 million, respectively. The outlook is stable.RATINGS RATIONALEThe A1 issuer rating, which reflects the district's general credit quality and ability to repay debt and debt-like obligations, incorporates the district's solid resident income and healthy operating reserves and liquidity. These strengths are offset by a recent trend of declining enrollment, which management is proactively addressing through conservative budgeting and a recent elementary school closure completed in fiscal 2021. The rating also reflects the district's elevated long-term liabilities and fixed costs driven by outstanding debt and pension liabilities.The Aa3 rating on the district's GO 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 A2 rating on the district's COPs is one notch below the issuer rating, reflecting the contingent nature of the lease payments, abatement risk, and the more essential leased asset of school buildings. All of the district's actively managed general revenue is available for lease payments.RATING OUTLOOKThe stable outlook reflects our expectation the district will maintain healthy reserves and manage expected enrollment declines through its conservative and proactive fiscal management.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Improved enrollment trend- Meaningful reduction in long term liabilities and fixed costsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Material decline in fund balance or cash- Increased pace of enrollment declines not met with expense reductionsLEGAL SECURITYThe GO bonds are secured by the levy of ad valorem taxes, unlimited as to rate or amount, upon all taxable property within the district. The portion of the levy restricted for debt service is collected, held, and transferred directly to the paying agent by Santa Clara County (Aa1 stable) on behalf of the district.The COPs are secured by the district's covenant to budget and appropriate lease payments for the use and occupancy of the district's Eliot Elementary and Las Animas Elementary schools. The COPs are supported by a three-prong debt service reserve funded with a surety policy.USE OF PROCEEDSThe 2021 GO bonds represent the third and final series under the district's 2016 election (Measure E), which authorized $170 million. Proceeds will finance school facilities improvement projects.The 2021 GO refunding bonds will refund a portion of the outstanding GO Bonds, Election of 2008, Series 2015 and GO Refunding Bonds, Series 2015 for level debt service savings. There is no extension of maturity.PROFILEGilroy Unified School District is located in Santa Clara County and encompasses 260 square miles, including the City of Gilroy and adjoining unincorporated areas. The district provides K-12 grade education to 10,853 students as of fiscal 2021 and operates seven elementary schools, three middle schools, two comprehensive high schools, one early college academy, one continuation high school and one adult education center.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. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004For 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. Kirstyn Lee Lead Analyst Regional PFG West Moody's Investors Service, Inc. 405 Howard Street Suite 300 San Francisco 94105 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lauren Von Bargen Additional Contact Regional PFG Northeast 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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