Uncertainty isn’t welcomed by the U.S. bond market.
That’s why a major credit ratings agency is concerned about how the proposed breakup of the Clark County School District will affect its credit worthiness.
It’s important to note that Moody's Investors Service did not downgraded the school district’s A-1 low-risk investor grade rating. And the rating agency’s outlook remains “stable.”
But Moody's says the proposed breakup of the nation’s fifth largest school district creates uncertainty and that represents a credit negative.
“Let’s just be clear, when Moody’s says something is credit negative it doesn’t mean that we are changing the Clark County School District’s rating or even its outlook,” William Oh, a Moody’s analyst based in San Francisco, told KNPR’s State of Nevada.
Oh said what his report was saying is that the “uncertainty of the legislation is a negative credit factor that could affect the school district in the future.”
The new law creates a study to reorganize the district into a number of smaller entities by the 2018-2019 school year. The entities would operate underneath the existing school district.
Oh wrote it was unclear what impact, if any, the new legislation will have on the district’s near-term capital and financing plans. In early March, Gov. Brian Sandoval, R-Nev., signed a bill allowing school districts to issue debt without voter approval, provided debt service requirements can be made under existing tax rates.
Clark County School District officials have conservatively estimated they could generate about $4 billion in bond proceeds over the next decade. Those funds would replace two elementary schools, build 12 additional schools, and add capacity to 40 existing schools by 2018.
The school district currently has $2.5 billion in general obligation limited tax bonds outstanding, with those notes maturing in 2028.
“What we could see in a reorganization is smaller tax bases, with different sizes and different wealth levels that would be different from the current single unified school district,” Oh told KNPR. “Some of these districts won’t have a history of management for us to review.”
Oh cautioned that it remains “unclear” how the school district “will pay existing debt and issue new debt.”
William Oh, analyst, Moody's Investors Service
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