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Mabel-Canton Independent School District 238, MN -- Moody's assigns initial A3 UND/Aa2 ENH to Mabel-Canton ISD 238, MN's GO bonds

·13 min read

Rating Action: Moody's assigns initial A3 UND/Aa2 ENH to Mabel-Canton ISD 238, MN's GO bonds

Global Credit Research - 29 Dec 2020

New York, December 29, 2020 -- Moody's Investors Service has assigned an initial underlying A3 rating and an enhanced Aa2 rating to Mabel-Canton Independent School District No. 238, MN's $6.7 million General Obligation School Building and Tax Abatement Bonds, Series 2021A . Following the sale, the district will have $6.7 million in outstanding general obligation debt.

RATINGS RATIONALE

The A3 general obligation unlimited tax rating reflects the district's small and rural tax base located in southeastern Minnesota; improved financial operations with healthy reserves; a moderate debt and pension burden. The rating also reflects the credit risk related to the potential expiration in 2024 of an interstate agreement allowing students to open enroll into the district. We do not see any material immediate credit risks for the district from the coronavirus pandemic given its healthy financial position and stability of state aid to the district. Governance is a driver of this initial rating action. Management's ability to manage revenues and expenditures is reflected in the institutional framework score of "A" under our ESG framework.

The Aa2 enhanced rating reflects the additional security provided by the Minnesota School District Credit Enhancement Program. The programmatic rating is notched once from the state's Aa1 general obligation rating and the program carries a stable outlook, reflecting the stable outlook on the State of Minnesota. The enhanced rating reflects sound program mechanics and the state's pledge of an unlimited appropriation from its General Fund should the district be unable to meet debt service requirements. The program's mechanics include a provision for third party notification of pending deficiency. If the school district does not transfer funds necessary to pay debt to the paying agent at least three days prior to the payment due date, the state will appropriate the payment to the paying agent directly. Moody's has received a copy of the signed program application.

RATING OUTLOOK

Outlooks are not usually assigned to local governments with this amount of debt.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

-Significant tax base expansion and diversification

-Strengthening of resident income

-Sustained positive enrollment trend

-Upward movement in State of Minnesota's GO rating (enhanced)

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

-Deterioration of tax base

-Enrollment declines leading to revenue loss

-Significant growth in debt or pension burden

-Downward movement in the State of Minnesota's GO rating (enhanced)

LEGAL SECURITY

The district's GOULT bonds are secured by the district's full faith and credit and pledge to levy a dedicated property tax unlimited as to rate and amount. Minnesota local governments' general obligation bonds are secured by statute, under state law.

The bonds are additionally secured by the State of Minnesota's School District Credit Enhancement Program, which provides for an unlimited advance from the state's General Fund should the district be unable to meet debt service requirements.

USE OF PROCEEDS

The 2021A bonds will finance school facilities improvements including air quality projects and parking lot improvements.

PROFILE

Mabel-Canton ISD 238, MN is located primarily in Filmore County in southwestern Minnesota. The district provides K-12 education for 287 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.

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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Maxwell Brekke 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 Dan Seymour Additional Contact Rtgs And Proc Ovsght 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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