Nov 1, 2022
The Credit Rating Agency Sees Our Issues Too
School Bond Rating AA- The Credit Rating Agency Sees our Issues….
At the September Board meeting Mark Byars stated “Yes we have a high debt ratio. We also have a high debt bond rate. We have a high-grade investment grade and bond rating and what that means is while we have a large debt number, we also have the ability to pay that number off.”
The school states that it obtains a credit rating review for each time it issues bonds. The last of the $72 million the voters approved in 2020 was issued in August 2022 for $7.53 million dollars (Note: first principal payment not until 2030)
Credit ratings are forward looking opinions about Bennington School District’s relative credit worthiness and likelihood of whether the District may repay its current debts on time and in full. Most school districts in Nebraska have a “AA” rating. The only one higher is Lincoln Public Schools at “AAA”.
One main reason we are all rated “AA” and have the “ability to pay that number off” is because of the School District’s unlimited property tax pledge.
That is the security for investors.
Remember the ballot language you get to vote on? “Shall the District cause to be levied and collected annually a special levy of taxes against all the taxable property in said District sufficient in rate and amount to pay the interest and principal of said bonds as the same become due?”
The school said a $0.10 levy but they are basing that on the valuation growth at 11% for the first five years (2023 to 2027), an 8% increase for the next six years after that (2028 to 2033) and a 5% increase until such bonds are retired.
If that does not happen, the School District must set their debt millage rate at whatever rate is ”sufficient” to make annual principal and interest payments on their bonds.
In the name of transparency, attached is the full report from the credit rating agency. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency if, in the judgment of such rating agency circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds.
Some items to note in the report from the rating agency:
“We could consider a negative rating action if the district experiences financial pressure--stemming from its growing debt burden or otherwise--that leads to budgetary imbalance or material declines in reserves. We could also consider a negative rating action if debt metrics materially deteriorate or if economic growth stalls.
We could consider a positive rating action if the district’s debt profile moderates significantly along with additional formalization or enhancement of financial policies and reporting practices.
The district follows state guidelines for investment and reserve policies and it does not have a debt management policy. The district does not have a long-term capital improvement plan or a long-term financial plan that includes multi-year projections of revenues and expenditures.
Including the 2022 bonds, the district will have approximately $178 million of total direct debt outstanding, which in our view is elevated as a percent of market value (10.3%) and high on a per capita basis ($17,098). Debt service carrying charges are moderate-to-high, in our view, at around 15% of expenditures. Amortization is relatively slow, with about a third of principal retiring within the next 10 years.”
The rating agency sees it too.
We have a high debt ratio.
We are not paying off principal.
We have no debt policies or plan.
After the S&P report, the Fed raised interest rates 0.75% both times in late July and September. The Federal Reserve also released projections for additional rate hikes to hit their target inflation rate of 2%. Experts predict increases throughout 2022 at each of the Fed’s remaining meetings in November and December. Higher interest rates make mortgages less affordable. Will the valuation growth come for the next 25 years?
I have a call into S&P to ask at what level of debt of their “Key Credit Metrics” would cause us a downgrade in our bond rating. I will update when I get a response.
Don’t be fooled that a “AA-“ rating for the current debt means we can take on
$153 million of new debt.
Once we approve a bond, the School District can tax us at whatever levy is needed to repay debt. The credit rating agency already says we are high. We need to vote down “this” bond and vote in 3 new board members (Dick, Hulm, Cameron, or Shannon) to re-assess and put forth a fiscally responsible plan to meet student needs.