Fitch Takes Various Actions on Twin Rivers USD, California (Grant Joint Union HSD & Rio Linda ESD)

NEW YORK--(Business Wire)--
In the course of routine surveillance, Fitch Ratings takes various rating
actions on the following Twin Rivers Unified School District, California (Twin
Rivers USD) bonds:

--Rio Linda Elementary School District (Rio Linda ESD) $50.7 million general
obligation (GO) bonds (series 2003A and 2007) downgraded to 'A' from 'A+';

--Grant Joint Union High School District (Grant JUHSD) $106.8 million GO bonds
(series 2008 and 2007A) affirmed at 'A';.

The Rating Outlook for all rated securities is revised to Negative from
Evolving.

Rio Linda ESD and Grant JUHSD merged with two other districts on July 1, 2008,
forming the new Twin Rivers USD. Twin Rivers USD has assumed legal
responsibility for all general obligations of its four composite districts, and
is the obligor for all securities listed above. Twin Rivers USD has the same
jurisdictional boundaries as Grant JUHSD. Fitch does not rate the other two
districts included in the merger.

The 'A' rating reflects Twin River USD's currently sound unreserved general fund
balance, significant reserves outside of the general fund, and the district's
strong commitment to reducing redundant positions under the newly merged
operations, as soon as is practical and permissible under the California
Education Code. The rating further reflects the district's very high debt
levels, slow rates of amortization, and its relatively high rates of student
enrollment decline. The Negative Outlook reflects Fitch's concerns that
financial margins may erode over the near term given uncertainties surrounding
enrollment, consolidation efforts, and state funding. Management conservatively
projects large general fund operating deficits and rapid reductions in fund
balance through fiscal 2012, with a negative fund balance in 2012 unless the
district is able to dramatically reduce expenditures.

Twin Rivers USD's fiscal 2009 projected ending unreserved general fund balance
was solid at $33.3 million (12.8% of the year's total general fund spending).
The district also retains approximately $46.1 million in fully useable reserves
in its Building and other funds, although the district's strong preference is to
retain those dollars for future capital needs. However, the district's
management conservatively projects successive annual net general fund deficits
for each year through 2012. The projected deficits are driven by a combination
of management's assumptions of further deep cuts to state revenues and operating
restrictions following the merger. These include the California Education Code's
stipulation that classified employees in merged districts cannot be laid off in
the two years following that merger.

Despite shedding almost 11% of its full-time equivalent teaching and management
staff (who are not protected by the above Education Code stipulation) since its
creation, Twin Rivers USD has been unable to retain budget balance due to sharp
reductions in its formula-driven revenue limit funding. Although in future years
the district is entitled to a rebate on the portion of those reductions retained
by the state to address its own liquidity crisis, the district's perennially
declining enrollment suggests this revenue source will suffer continual
impairment.

Based in Sacramento County, the Twin Rivers USD's tax base included
approximately 49.9% of the AV of the city of Sacramento as of fiscal 2009. The
district's total population in 2007 was 189,605. Twin Rivers USD's assessed
value declined 10.5% in fiscal 2010. Housing market metrics provide little
optimism for a rapid recovery, as foreclosure and delinquency activity in the
second quarter of the year were somewhat higher than the already poor state
average.

Twin Rivers USD's overall debt levels are very high, at 11.5% of its total
market value. The debt is amortized slowly, retiring just 25% of principal
within ten years.

Additional information is available at www.fitchratings.com.

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Fitch Ratings, New York
Tom Cowell, +1-212-908-9130
Alan Gibson, +1-415-732-7577 (San Francisco)
Media Relations:
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com

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