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Grand Rapids Public Schools, MI -- Moody's downgrades Grand Rapids Public Schools, MI's GO to A3; outlook negative

·11 min read

Rating Action: Moody's downgrades Grand Rapids Public Schools, MI's GO to A3; outlook negative

Global Credit Research - 13 Jan 2021

New York, January 13, 2021 -- Moody's Investors Service has downgraded to A3 from A2 the general obligation unlimited tax (GOULT) rating of Grand Rapids Public Schools, MI. The outlook remains negative. The A3 rating and negative outlook affects $205.3 million of outstanding GOULT debt.

RATINGS RATIONALE

The downgrade to A3 reflects the district's narrowed financial position that will continue to face revenue pressure as a result of falling student enrollment. Additionally factored are the district's sizable tax base that covers the majority of the City of Grand Rapids (Aa2 stable), which serves as the economic engine of western Michigan (Aa1 stable). The rating also considers the district's significant leverage consisting of debt, and unfunded pension and other post-employment benefit (OPEB) obligations.

RATING OUTLOOK

The negative outlook factors the district's persistently limited financial position that will continue to be challenged by declining enrollment amidst intense competition for area students. One time stimulus funding will provide a positive cushion to district operations, but will likely be spent down and the long term trajectory of the revenue base remains negative.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Stabilization of student enrollment trends that contributes to increased budgetary reliability

- Sustained increases to operating fund balance and liquidity

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Continued declines in student enrollment that pressures operating revenue and reduces budgetary reliability

- Further narrowing of operating fund balance and liquidity

- Material increase in the debt or pension burden

LEGAL SECURITY

Debt service on outstanding GOULT bonds are secured by the district's full faith and credit, along with its authorization to levy an unlimited ad valorem tax on all taxable property.

PROFILE

Grand Rapids Public Schools encompasses approximately 43 square miles in Kent County (Aaa stable), with boundaries that closely coincide with those of the City of Grand Rapids (Aa2 stable). The district provides pre-kindergarten through twelfth grade education to approximately 14,500 students.

METHODOLOGY

The principal methodology used in these ratings was 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 this methodology.

REGULATORY DISCLOSURES

For 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.

Andrew Van Dyck Dobos Lead Analyst Regional PFG Chicago Moody's Investors Service, Inc. 100 N Riverside Plaza Suite 2220 Chicago 60606 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 David Levett Additional Contact Regional PFG Chicago 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

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