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Lexington County School District 1, SC -- Moody's assigns Aa2 Und./Aa1 Enh. to Lexington CSD 1, SC's GO bonds, outlook stable

·14 mins read

Rating Action: Moody's assigns Aa2 Und./Aa1 Enh. to Lexington CSD 1, SC's GO bonds, outlook stable

Global Credit Research - 24 Aug 2020

New York, August 24, 2020 -- Moody's Investors Service assigns Aa2 underlying and Aa1 enhanced ratings to Lexington County School District 1, South Carolina's $160.3 million General Obligation Bonds, Series 2020C. We maintain the Aa2 underlying rating on the district's outstanding general obligation unlimited tax debt, of which there will be an estimated $676 million outstanding following the Series 2020C issuance. The outlook is stable.

RATINGS RATIONALE

The Aa2 underlying rating reflects the district's sizeable and growing tax base that is fueled by continued population growth and new development. The district's strong financial position also supports the rating, with consistent surplus operations leading to a steady improvement in fund balance and liquidity. The district's debt burden is above average due to substantial capital borrowing needed to update facilities and accommodate enrollment growth. The district's pension burden is also above average.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The coronavirus crisis is not a key driver for this rating action. The district's most significant credit-exposure to the pandemic stems from its reliance on state aid. While no cuts to state aid have been announced at this time, the state is highly reliant on economically sensitive sales and income tax revenues and state officials plan to reconvene in the fall to consider any necessary budget adjustments. Given the district's reliance on state aid, it would likely need to cut spending or draw down reserves should the state implement midyear budget cuts. Officials report that preemptive measures are already being pursued and include district-wide salary freezes, programmatic cuts and some staffing adjustments. Still, the situation surrounding the coronavirus pandemic is evolving and the longer-term credit impact will depend on both the severity and duration of the crisis. If our view of the district's credit quality changes, we will update the rating and outlook at that time.

The Aa1 enhanced rating is based on the additional security provided by the South Carolina School District Credit Enhancement Program (SCSDCEP). The program enhances timely debt service payment through county and state government coordination and is backed by a sizeable annual state appropriation under the state's Education Finance Act. As the SCSDCEP is a state-backed program, the rating is notched from the state's rating and consequently carries the stable outlook currently assigned to the state's Aaa general obligation rating.

RATING OUTLOOK

The stable outlook on the underlying rating reflects the expectation that the district's financial position will remain in line with the rating category over the next 12 to 18 months despite potential cuts to state aid - a challenge that is mitigated by the district's prudent financial management and sound reserves.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Significant reduction in debt and pension burdens

- Sustained improvement in fund balance and liquidity

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Trend of operating deficits and material weakening of fund balance or liquidity

- Significant increase in debt relative to tax base and operating revenue

- Downgrade of the state's rating (enhanced rating)

LEGAL SECURITY

The general obligation bonds are secured by the district's full faith, credit and taxing power and benefit from a dedicated property tax that is unlimited by rate or amount.

Additional security is provided by the SCSDCEP, which enhances the timeliness of debt service payments through county and state government coordination and is backed by a sizeable annual state appropriation under the state's Education Finance Act.

USE OF PROCEEDS

The Series 2020C bonds will finance the costs of constructing, equipping and furnishing several school facilities, making payments on two installment purchase revenue bond financings, and paying the costs of issuance of the bonds.

PROFILE

Lexington County School District 1 is the largest of the five school districts in Lexington County (Aaa stable) in the Midlands Region of South Carolina, located across the Congaree River from the City of Columbia (Aa1 stable). The district offers comprehensive educational programs for students in prekindergarten through the twelfth grade. Enrollment for the 2019-2020 school year was 26,504 students.

METHODOLOGY

The principal methodology used in the underlying rating was US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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.

The rating 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_1133569.

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.

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.

Francis Mamo 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 Chandra Ghosal Additional Contact Municipal Supported Products 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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