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Perry Local School District (Stark Co.), OH -- Moody's downgrades to Aa3 the issuer rating of Perry Local School District (Stark County), OH

Rating Action: Moody's downgrades to Aa3 the issuer rating of Perry Local School District (Stark County), OH

Global Credit Research - 20 Aug 2020

New York, August 20, 2020 -- Moody's Investors Service downgrades to Aa3 from Aa2 the issuer and general obligation limited tax (GOLT) ratings of Perry Local School District (Stark County), OH. Concurrently, we have assigned an initial Aa3 rating to the district's $58.4 million General Obligation (Unlimited Tax) School Improvement Bonds, Series 2020, as well as an initial A1 rating to its $27.2 million Certificates of Participation, Series 2020. The Series 2020 general obligation unlimited tax (GOULT) bonds and certificates of participation (COPs) will reflect all the district's debt related to the respective security pledges. The pledge supporting the district's GOLT debt is limited because of the state imposed 10-mill limitation. In addition, the district has $2.4 million in outstanding GOLT debt.

The issuer rating represents Moody's assessment of the district's hypothetical long-term general obligation unlimited tax (GOULT) pledge. The district does not currently have any outstanding debt supported by a GOULT pledge.

RATINGS RATIONALE

The downgrade of the district's issuer rating to Aa3 from Aa2, along with the assignment of the Aa3 GOULT rating, reflects the district's consecutive draws on operating fund balance and liquidity. Although reserves remain satisfactory, fund balance is projected to decline further in fiscal 2021 to levels inconsistent with its previous rating peers. Additionally, the district is taking on relatively large amounts of debt, which combined with its outstanding pension liabilities, results in above average long term leverage. The rating also considers the district's moderately sized tax base in northeastern Ohio (Aa1 stable), with slightly below average socioeconomic characteristics and slowly declining student enrollment.

The lack of rating distinction between the district's issuer/GOULT rating and GOLT rating reflects its full faith and credit pledged towards the repayment of limited tax debt.

The one notch distinction applied to the district's A1 COPs rating reflects the more essential nature of the capital projects to be financed with debt proceeds, as well as to incorporate annual appropriation risk by the district's board of education.

The coronavirus outbreak is 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. We do not see any material immediate credit risks for Perry Local School District. However, the situation surrounding coronavirus is rapidly evolving and the longer-term impact will depend on both the severity and duration of the crisis. Economic impacts of the coronavirus have been felt broadly across the state and have led to a significant decrease in the state's revenue collections. State aid for the K-12 sector will likely be reduced in fiscal 2021, although the degree of reduction is unknown. If our view of the credit quality of the district changes, we will update the rating and/or outlook at that time.

RATING OUTLOOK

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

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Material tax base expansion coupled with a strengthening of resident income levels

- Sustained bolstering of operating fund balance and liquidity

- Moderation of the district's long term liability leverage

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Further narrowing of operating fund balance or liquidity

- Pronounced increases to the district's long term liability leverage

LEGAL SECURITY

The Series 2020 GOULT bonds are secured by a dedicated, voter approved levy, unlimited as to rate or amount. Outstanding GOLT debt is secured by the district's limited tax pledge, pursuant to the state's 10-mill limitation. All GO debt carries the district's full faith and credit pledge.

The Series 2020 COPs are secured by the district's pledge to annually appropriate lease rental payments towards the retirement of the debt.

USE OF PROCEEDS

The Series 2020 GOULT bonds and COPs will be issued for the purpose of financing Phase 1 of the district's master plan which entails constructing four new elementary school buildings (grades pre-K-5) to replace the district's five existing elementary schools, along with targeted renovations to the Perry High school (grades 9-12). The Series 2020 GOULT bonds were authorized by district voters at a March 17, 2020 election. The Series 2020 COPs were authorized by the district's board of education on July 28, 2020.

PROFILE

Perry Local School District encompasses 24 square miles of Stark County (Aa2) in northeastern Ohio, approximately 20 miles south of the City of Akron (Aa3 stable). The district provides pre-K through 12th grade education to approximately 4,500 students in a community of roughly 30,000 residents.

METHODOLOGY

The principal methodology used in the general obligation ratings 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 lease rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1102364. 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_1133569.

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 Coley Anderson 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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