Rating Action: Moody's assigns MIG 1 to SCAGO's Taxable COPs, Series 2020D
Global Credit Research - 27 Aug 2020
New York, August 27, 2020 -- Moody's Investors Service has assigned a MIG 1 rating to South Carolina Association of Governmental Organization's (SCAGO) $100.6 million Taxable Certificates of Participation, Series 2020D (Evidencing Undivided Proportionate Interests in Tax Anticipation Notes (General Obligations) of Certain South Carolina School Districts).
The MIG 1 rating is mapped to the long-term enhanced rating assigned to the South Carolina School District Credit Enhancement Program (SCSDCEP), which is currently Aa1 with a stable outlook. The SCSDCEP is state aid intercept program under which all general obligation debt issued by South Carolina school districts qualify. The program 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.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
- Downgrade of the state's underlying rating
The certificates are secured by payments made by the participating school districts directly to the trustee and represent proportionate undivided interests in notes issued by the school districts pursuant to their individual note resolutions. As security for the payment of its note, each school district has irrevocably pledged its full faith, credit and taxing power together with reimbursements from the state in lieu of certain property taxes. In addition, the notes are further secured by the South Carolina School District Enhancement Program (SCSDCEP).
SCAGO has assigned its rights to the certificates and notes to the trustee (Regions Bank) until maturity (April 15, 2021). The trust agreement stipulates that the trustee will establish individual disbursement accounts for each school district where their proportionate share of the proceeds will be deposited to ensure proper segregation of funds. The district can withdraw amounts from their disbursement account until no later than January 4, 2021 at which time the amount of the sinking fund payments is identified by the trustee. To identify the amount of the sinking fund payments, the trustee will determine the difference between the amount on deposit in each school district's disbursement account and the amount required to pay the principal and interest on their note in full on the discharge date (last business day in March 2020). Participating school districts are required to make sinking fund payments in equal amounts on the last business day of January, February and March 2021.
If on April 1, 2021 there is not enough money in a school district's sinking fund account to pay the principal and interest on their note at maturity, the trustee shall request the appropriate county treasurer to notify the state treasurer pursuant to the statutory intercept. Upon receipt by the trustee of such monies from the state treasurer and the county treasurer, the trustee shall disburse all funds so collected to the holders of the certificates.
The South Carolina School District Credit Enhancement Program (SCSDCEP) assures timely debt service payment through county and state government coordination and is backed by sizeable annual state appropriation under the state's Education Finance Act. The county treasurer is required to notify the state treasurer on the fifteenth day prior to the debt service due date if the county treasurer or the paying agent does not have on deposit the sum required to make a debt service payment.
Upon notification, the state's mandate to act is spelled out in the statute (SC Code of Laws Section 59-71-155 ). If the county treasurer or the paying agent does not have on deposit the sum required to make debt service payment on the third business day prior to the debt service due date of the general obligation bonds, the state treasurer is required to transfer to the county treasurer from the state general fund the sum necessary to meet debt service requirements. If a separate paying agent has been appointed, the county treasurer must, immediately upon receipt of the money, transfer it to the paying agent.
USE OF PROCEEDS
Proceeds of the Certificates will be used to purchase an exact same principal amount of notes being issued pursuant to individual note resolutions adopted by each participating school district, and to pay the cost of issuing the Certificates. Each participating district will use the proceeds of their respective note for cash flow purposes, necessitated by the receipt of most property taxes between November through January
SCAGO is a nonprofit corporation formed in 2002 which acts as a conduit issuer so that school districts may realize certain economies of scale from multi-issuer financings. SCAGO is managed by a board consisting of seven to nine individuals, three of whom are appointed by the South Carolina Association of School Business Officials (SCASBO), three of whom are appointed by the South Carolina Association of School Administrators (SCASA) and up to three of whom are appointed by a majority vote of the directors appointed by SCASBO and SCASA.
The principal methodology used in this rating was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1210749. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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 has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is 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 Robert Weber Additional Contact Regional PFG Northeast 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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