Harlan County S.D. Finance Corporation, KY — Moody’s assigns A1 ENH to Harlan CSD, KY’s $2.4M Lease Refunding Revenue Bonds, Ser. 2021


Rating Action: Moody’s assigns A1 ENH to Harlan CSD, KY’s $2.4M Lease Refunding Revenue Bonds, Ser. 2021Global Credit Research – 18 Mar 2021New York, March 18, 2021 — Moody’s Investors Service has assigned an A1 enhanced rating to Harlan County School District, KY’s $2.4 million School Building Refunding Revenue Bonds, Taxable Series of 2021, issued through the Harlan County School District Finance Corporation, KY.RATINGS RATIONALEThe A1 enhanced rating is based on the Kentucky School District Enhancement Program, which carries an A1 rating with a stable outlook. The program rating is available to all Kentucky school districts, and the rating and outlook shadow the Commonwealth of Kentucky, which is currently rated Aa3 with a stable outlook.RATING OUTLOOKThe school district currently does not have an underlying rating. Thus, we have no assigned outlook. The Kentucky School District Enhancement Program that the rating is based on has a stable outlook.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING OF THE RATING- An upgrade of the Commonwealth of Kentucky’s long-term issuer ratingFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING OF THE RATING- Downgrade of the Commonwealth of Kentucky’s long-term issuer rating- Weakening of the program’s notification and timing provisions or of the state of Kentucky Department of Education’s (« KY DOE ») oversightLEGAL SECURITYThe bonds are secured by annual rental payments by the district to the corporation from the leasing of the project. Rental payments from the district are subject to annual appropriation and the lease automatically renews, unless the district provides notice of termination 90 days prior to the automatic renewal date (July 1). The portion of annual rental payments equal to debt service on the bonds is forwarded directly to the paying agent at least 10 days prior to debt service due dates.The mechanics of the 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.KY DOE’s strong oversight and willingness to exercise its powers mitigate the risk of non-appropriation. All school district budgets are subject to annual approval by the KY DOE. Additionally, KY DOE is authorized to disapprove a budget if it is financially unsound or fails to provide for debt service, payment of rentals in connection with debt service, or otherwise to comply with the law. A lease’s nonrenewal or default would likely result in a takeover of the school’s fiscal management and/or removal of the elected school board. KY DOE has a record of taking over the management of school districts that face deficit operations.USE OF PROCEEDSProceeds will be used to refund the district’s remaining outstanding School Building Revenue Bonds, Series of 2012 for debt service savings with no extension to maturity.PROFILEHarlan County School District is located in southeastern Kentucky, approximately 153 miles southeast of Lexington-Fayette Urban County Government, KY (general obligation Aa2 stable). The district had average daily attendance of 3,273 for the 2019-20 school year, which represents a 2.2% decline from the prior school year. The Harlan County School District Finance Corporation, issuer of the Taxable 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.METHODOLOGYThe principal methodology used in this 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 this methodology.REGULATORY DISCLOSURES’For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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