Moody’s is raising the Kent School District bond rating

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Moody’s Investor Service has raised the bond rating for the Kent School District from A1 to Aa3. The rating outlook was raised from positive to stable.

The Aa3 issuer rating, which reflects the district’s overall credit quality and ability to repay debt and debt-related obligations, includes solid financial health, thanks to exceptionally strong management that has generated significant surpluses in 2019 and 2020, according to Moody’s report dated June 13, 2019 February 12th .

A rating of Aaa1 is the highest, followed by Aa, A, Baa, Ba, B, Caa, Ca, and C. Modifier 1 indicates that the commitment is at the high end of its general rating category; the modifier 2 indicates a ranking in the middle range; and the modifier 3 indicates a ranking at the bottom of this generic rating category.

Like the majority of Washington’s districts, the district has, in Moody’s view, poor financial reporting that fails to disclose other post-employment benefit obligations, capital assets, or depreciation because the district complies with the Regulatory Basis of Accounting as directed by the Office of Superintendent of Public Instruction (OSPI) and licensed under Washington State law.

The rating also takes into account the district’s involvement in the Puget Sound economy, which supports above average resident income and high total per capita value. Although enrollments fell significantly in fiscal 2021 due to the coronavirus pandemic, management has demonstrated its ability to weather difficult financial situations and produce strong results. Long-term liabilities are manageable and overall fixed costs are low.

The district’s General Obligation Bonds rating has been upgraded one notch to match its issuer rating of Aa3, based on the district’s General Obligation Full Trust and Loan Pledge and an unrestricted property tax dedicated to debt servicing.

A bond rating is similar to a personal credit rating.

Bond ratings are a simple concept. School districts building schools are essentially no different from most residents who want to build a house – they need to apply for a loan from a bank. And those who apply for a loan will quickly learn that creditworthiness counts.

When doing a school district review, a rating agency creates an underlying credit score (like your personal credit score) and also assigns an outlook based on whether financial conditions get better or worse.

A higher rating gives the district a stable outlook.

Although the county is financially sound, the effects of COVID-19 and its costs are still largely unknown. These stable financial prospects will help the district meet these challenges.

Rating outlook

The stable outlook reflects a strong management team that is expected to continue to deliver long-term structural balance and maintain manageable levels of long-term balance sheet debt, according to Moody’s.

Factors that could lead to an upgrade:

• Improved registration trend

• Strengthening the full value per capita or the residents’ income

• Increase in fund balance and cash

• Improved financial reporting

Factors that may result in a downgrade:

• Significant increase in long-term liabilities, fixed costs or erosion of fixed assets

• Significant decrease in fund balance or cash

• Significant deterioration in the county or region’s economy

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