Las Vegas Sun

August 31, 2015

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Wall Street lowers School District’s bond rating

Two major Wall Street debt-rating agencies downgraded the Clark County School District’s bond rating this week, complicating its long-term plans to upgrade and maintain its school buildings.

Standard & Poor’s downgraded the School District’s bond rating from AA to AA- on Thursday while assigning a “negative outlook.”

Moody’s downgraded the School District’s bond rating from Aa2 to Aa3 on Friday. It however assigned a “stable outlook” for the district’s economic future.

The downgrades are a reflection of the School District’s weakening financial situation, driven by declining property tax revenue and state aid, as well as stagnant student enrollment, according to the agencies. Moody’s also attributed the downgrade to “ongoing operational imbalance.”

The district’s financial outlook was buoyed by several strengths, however.

The School District has a “substantial tax base” to draw from as Las Vegas recovers from the recession, Moody’s said.

The agencies commended the School District for its willingness to enact budget cuts. The district also has a moderate debt burden and a sizeable but dwindling debt service reserves, the agencies said.

The new bond ratings are still within “investment grade,” said Jeff Weiler, the School District’s chief financial officer. However, if the ratings fall again, the market for the district’s bonds will be much smaller, he said.

The district’s debt rating could go down further if assessed property values continue to decline and there are additional drawdown of reserves, Moody’s said.

The downgrade could impact the School District’s long-term capital improvement plans as it wrestles with $5.3 billion in school maintenance needs over the next decade.

Although the district is not pursuing a bond program at this time – instead opting for a 6-year capital levy that would fund $660 million in immediate improvements – district officials are likely to pursue a future bond program to finance the rest of the capital improvement needs.

“Down the road, this will have an impact potentially,” Weiler said, “but not now.”

The ratings downgrade also would likely reduce any interest savings if the district decides to refinance its prior bonds in the future, Weiler said.

“We’re always looking for opportunities to refinance bonds at a lower interest rate,” he said. “If we decide to refinance in the future, the interest rate we refinance it at will be higher than it would have been if our bond rating was not downgraded. We won’t achieve quite the same savings.”

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