TEXT-S&P cuts Saginaw City School District, Mich. issuer credit rating

Fri Aug 31, 2012 12:42pm EDT

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Aug 31 - Standard & Poor's Rating Services lowered its school issuer credit rating (ICR) on Saginaw City School District, Mich.'s general obligation (GO) debt one notch to 'BBB' from 'BBB+' based on larger than expected general fund drawdowns in fiscal 2011 (audited) and 2012 (unaudited), which has resulted in a negative fund balance. At the same time, Standard & Poor's affirmed its 'AA-' program rating on the district's GO bonds based on the district's qualification for, and participation in, the Michigan School Bond Qualification and Loan program.

"The stable outlook on the SPUR reflects our rating outlook on the state of Michigan," said Standard & Poor's credit analyst Errol Arne. "The stable outlook on the school ICR reflects Standard & Poor's expectation that the district's new administration will continue to make significant expenditure adjustments to counter reduced revenues and move toward balanced operations," said Mr. Arne. The school ICR reflects Standard & Poor's assessment of the district's:

* Negative fund balance resulting from continuing deficits;

* Local economy beleaguered by high unemployment;

* Economic indicators, which range from low to adequate; and

* Drop in enrollment, which ties directly to state aid funding. Somewhat tempering the negative credit factors listed above are the district's access to the nearby employment centers of Midland and Bay City and low-to-moderate debt burden. Standard & Poor's does not expect to revise the rating within the two-year parameter because of management's efforts to reduce enrollment losses, as well as its willingness to reduce expenditures. If the district's financial position continues to weaken, Standard & Poor's could lower the rating. The district's unlimited-tax full faith and credit pledge secures the outstanding GO debt. Saginaw City School District serves an estimated population of 59,675 across the cities of Saginaw and Zilwaukee as well as a portion of Kochwell Township.

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