Franklin County S.D. Finance Corporation, KY — Moody’s confirms Franklin CSD’s (KY) Aa3 issuer rating; assigns A1 und. & enh. ratings to 2021 lease revenue bonds

Rating Action: Moody’s confirms Franklin CSD’s (KY) Aa3 issuer rating; assigns A1 und. & enh. ratings to 2021 lease revenue bondsGlobal Credit Research – 24 Feb 2021New York, February 24, 2021 — Moody’s Investors Service has assigned an A1 underlying and an A1 enhanced rating to Franklin County School District, KY’s $10 million School Building Refunding Revenue Bonds, Taxable Series of 2021, issued through the Franklin County School District Finance Corporation, KY. Concurrently, Moody’s has confirmed the district’s Aa3 issuer and outstanding A1 lease revenue bond ratings, which include the district’s 2018 and 2020 bonds. The issuer rating reflects the district’s ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. This action concludes a review for possible downgrade initiated on January 26, 2021 in conjunction with the release of the US K-12 Public School Districts Methodology.RATINGS RATIONALEThe Aa3 issuer rating incorporates the district’s growing local economy which benefits from its location near the state capital as well as its proximity to multiple regional employment centers, healthy resident income levels, and solid reserve and liquidity positions supported by a history of conservative budgeting. The Aa3 rating further incorporates the district’s manageable debt and pension liabilities, and low fixed costs.The A1 lease revenue rating is one notch below the issuer rating, reflecting the risk of non-appropriation of annual rental payments for debt service on the lease revenue bonds and the essential nature of the leased assets secured by a statutory mortgage lien.The A1 enhanced rating is based on the Kentucky School District Enhancement Program (KSDE) which carries an A1 rating with a stable outlook. The program rating is available to all Kentucky school districts and the rating and outlook shadows the Commonwealth of Kentucky, which is currently Aa3 stable.The program is supported by the Kentucky Department of Education’s (KY DOE) commitment to forward any funds available for intercept directly to the district’s paying agent in the event of a pending debt service deficiency. The mechanics of the intercept program require lease rental payments to be made directly to the district’s paying agent at least 10 days prior to a debt service due date. The paying agent must notify the KY DOE if payment of principal or interest has not been received three days prior to the date on which the debt service payment is due.State oversight of the program is strong as school district operating budgets, long-term facilities plans, and debt issuances must be reviewed and approved by the KY DOE. The state’s oversight is further reflected in the KY DOE’s ability to access school district financials on a real time basis and a record of state intervention in underperforming schools.RATING OUTLOOKOutlooks are usually not assigned to local government issuers with this amount of debt.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Improvement in resident income levels- Enrollment growth- Material reduction in debt burden- Significant growth of reserves and liquidity- Upgrade of the Commonwealth of Kentucky (enhanced rating only)FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Reduction in operating flexibility and reserve levels- Substantial increase in debt burden- Material decline in enrollment and wealth and income levels- Downgrade of the Commonwealth of Kentucky (enhanced rating only)LEGAL SECURITYThe bonds are secured by annual lease rental payments from the school district, which are subject to annual appropriation. Additional bondholder security is derived from a statutory mortgage lien on the financed projects.The mechanics of the state enhancement program direct the paying agent to notify the KY DOE if payment of principal or interest has not been received three days prior to the date on which the debt service payment is due. Upon notification by the paying agent, the KY DOE must forward, from available funds, the amount due to the paying agent.USE OF PROCEEDSProceeds from the 2021 bonds will be used to refund the district’s outstanding School Building Revenue Bonds, Series of 2012, for savings with no extension of maturity. The refunded bonds were used to construct a Career and Technical Center.PROFILEFranklin County School District is located in the Bluegrass Region of Kentucky (Commonwealth of Kentucky, Aa3 stable), approximately 35 miles northwest of Lexington (Lexington-Fayette Urban County Government, KY, Aa2 stable), and serves all of Franklin County except for the City of Frankfort, which is served by Frankfort Independent School District. The district had average daily attendance of 5,669 for the 2019-20 school year, which represents a 0.6% decline from the prior year. The board consists of five elected members, representing individual election districts, that serve staggered four-year terms. The Franklin County School District Finance Corporation, issuer of the Series of 2021 bonds, is a non-profit corporation created by the district pursuant to Kentucky Revised Statute 162.385 to act as a municipal corporation and agency and instrumentality of the board.METHODOLOGY The principal methodology used in the underlying ratings was US K-12 Public School Districts Methodology published in January 2021 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1202421. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. 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