Rochester Community School District. MI GO Debt Upgraded To 'AA' From 'AA-' On Sustained Financial Results

CHICAGO (S&P Global Ratings) April 15, 2019--S&P Global Ratings raised its rating on Rochester Community School District, Mich.'s existing general obligation (GO) debt to 'AA' from 'AA-'. At the same time, S&P Global Ratings assigned it's 'AA' long-term program rating and 'AA' underlying rating to the district's series 2019 unlimited-tax GO school building and site bonds. The outlook on all ratings is stable.
"The upgrade reflects the district's consistently positive operating results over the past three years, posting significant general fund surpluses and nearly doubling its available general fund balance. In addition, the district continues to benefit from ongoing growth and opportunities in the very diverse Oakland County economy, which is likely to result in continued increases in enrollment, which is the primary determinant of state funding." said S&P Global Ratings credit analyst Stuart Nicol.
The district's unlimited-tax GO pledge secures the series 2019 bonds. We understand officials intend to use series 2019 bond proceeds to fund technology and infrastructure improvements; equip, remodel, and refurnish existing facilities; and complete other site improvements. This bond issue represents the second and final series from $185 million of electorate-authorized debt to complete capital needs districtwide.
The district has continued to improve its financial indicators over the past three years, posting significant operating surpluses and doubling its available general fund balance. This has led to ongoing growth and opportunities in the very diverse Oakland County economy, which is likely to continue to result in new and returning families increasing enrollment. The district's debt burden remains low, with pension and other postemployment benefit (OPEB) liabilities unlikely to pressure the district in the near term.
The rating reflects our opinion of the district's:
  • Access to the wider Oakland County economy;
  • Very strong income and extremely strong market value per capita;
  • Increasing enrollment, which ties directly to revenue; and
  • Strong budget performance and flexibility, evidenced by strong and growing reserves.
We believe the district's debt service carrying charge, along with combined pension and OPEB obligations are below that of higher rated peers, limiting the rating.
The stable outlook reflects S&P Global Ratings' opinion that the district will likely maintain strong reserves over the two-year outlook period. We believe positive enrollment trends and the district's access to the Oakland County economy provide rating stability.
We believe an upgrade is unlikely at this time, but we could raise the rating if the district were to achieve continuous and positive budgetary performance leading to the maintenance of available reserves at a significantly higher level, in conjunction with an increase in its economic indicators and an improvement in its pension and OPEB burden, assuming there was no deterioration in other credit factors.
Although we do not expect to lower the rating, if the district were unable to maintain balanced operations leading to a material decrease in its currently strong level of available reserves, this could lead to a downgrade.
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