Palmyra-Eagle Area School District, WI 'AA-' GO Debt Rating Placed On CreditWatch Negative On Potential Dissolution

CHICAGO (S&P Global Ratings) April 23, 2019--S&P Global Ratings placed its 'AA-' rating on Palmyra-Eagle Area School District (ASD), Wis.' general obligation (GO) debt on CreditWatch with negative implications.
The CreditWatch placement follows S&P Global Ratings' opinion of the district's preliminary vote to dissolve fully following its voters' failure to pass an operating-rate referendum that would have provided the district with $11.5 million of revenue during the next four fiscal years. Management indicates it will exhaust operating cash by fiscal 2021, according to its operating projections, without the additional revenue to balance the budget.
"We expect to resolve the CreditWatch within 90 days following a discussion with management," said S&P Global Ratings credit analyst Andrew Truckenmiller. "At that time, we could lower the rating multiple notches due to the district's intention to dissolve, coupled with further information from the district."
According to Wisconsin law, the school board cannot formally vote to dissolve until July 1 during a given school year. Following the expected board vote on July 1, Wisconsin Department of Instruction will then activate a school district boundary appeal board, which will determine if the district should dissolve by Jan. 15, 2020.
According to district management, it will operate at least until June 30, 2020, due to its currently ample reserves and cash flow. As of the fiscal 2018 audit, the district has $2.7 million of available general fund operating reserves, or 23% of general fund expenditures.
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