Kelso School District 458 (Cowlitz County), WA -- Moody's downgrades Cowlitz County School District 458 (Kelso), WA's GO to A1 & assigns A1 issuer rating
Rating Action: Moody's downgrades Cowlitz County School District 458 (Kelso), WA's GO to A1 & assigns A1 issuer ratingGlobal Credit Research - 29 Mar 2021New York, March 29, 2021 -- Moody's Investors Service has assigned an A1 issuer rating to Kelso School District 458 (Cowlitz County), WA. 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 downgraded the underlying rating on the district's general obligation unlimited tax (GOULT) bonds to A1 from Aa3. This action concludes a review for possible downgrade initiated on January 26, 2021 in conjunction with release of the US K-12 Public School Districts Methodology. The rating action affects $93 million in outstanding debt.RATINGS RATIONALEThe A1 issuer rating reflects a local economy with resident income close to the US median, tax base wealth that is slightly below average and a stable enrollment trend. The rating further incorporates a satisfactory financial position with reserves and liquidity that trends around 10% of operating revenue, a level that is below the median for the rating category. As is common among peers in the state, the rating also factors in the district's use of financial reporting that does not disclose other post-employment benefit liabilities, capital asset values, or depreciation, because the district follows the 'Regulatory Basis of Accounting' as directed by the Office of Superintendent of Public Instruction (OSPI) and allowed by Washington state law. The rating also incorporates a modest long-term liabilities ratio that has been on the rise due to recent debt issuance while fixed costs are expected to remain low.The district's general obligation bonds are rated A1, at the same level as the issuer rating, based on the district's general obligation full faith and credit pledge as well as an unlimited property tax that is dedicated to debt service.RATING OUTLOOKOutlooks are usually not assigned to local governments with this amount of debt outstanding.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material increase in reserves and liquidity- Decline in leverage- Strengthening of resident income and wealthFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Multi-year trend of operating deficits- Significant increase in leverage and rise in fixed costs- Negative enrollment trendLEGAL SECURITYThe district's GOULT bonds are payable from the district's full faith, credit, and unlimited property tax pledge. Bondholder security is enhanced by the county-provided lockbox for GOULT debt service.The Washington State School Bond Guarantee Program pledges its full faith and credit to make whole any shortfall in debt service by the district, if necessary, on a timely basis for payment to bondholders.PROFILEKelso School District 458 is located in Cowlitz County, WA (Aa3), 40 miles northwest of Vancouver, WA (Aa2), along the Columbia River. With an estimated population of 28,701 (as of 2019 American Community Survey data), the district encompasses 256 square miles serving portions of Longview, WA (Aa3) and Kelso, WA. Enrollment in fiscal 2020 was 5,138 students, served across seven elementary, two middle, and two traditional high schools, and a virtual academy serving grades 9-12.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_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. Nicholas Lehman Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. 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