Fitch: Some California School District GOs Protected in Bankruptcy

NEW YORK--(BUSINESS WIRE)-- The 'AAA' rating recently assigned to San Diego Unified School District's (SDUSD) upcoming general obligation (GO) bond issuance could set a precedent for other school district ratings throughout California, according to Fitch Ratings in a new report.

Last week, Fitch assigned an 'AAA' rating to SDUSD's GO bonds following receipt of supporting legal opinions identifying revenues pledged to bondholders as special revenues under Chapter 9 of the U.S. Bankruptcy Code. Debt service payments from special revenues would be uninterrupted in the event of bankruptcy.

As such, this type of bond issuance would be insulated from operating risk, according to Managing Director Amy Laskey. 'Not only would pledged revenues be uninterrupted in a bankruptcy, but they would not subject to netting provisions under the Code. The 'AAA' rating is not constrained by consideration of the district's operations. As a result, Fitch was free to focus its analysis on SDUSD's moderate debt load and strong economy and tax base without consideration of financial operations.

'Since there are few judicial precedents for the treatment of Proposition 39 bonds in bankruptcy, future cases could result in unanticipated outcomes,' said Laskey. Despite this uncertainty, Fitch expects that pledged revenues for such bonds would receive preferential treatment in any future bankruptcy as special revenues.

Fitch is in the process of determining its protocol for applying the special tax analysis to other California school district bonds. 'Legal Analysis Can Strengthen View of California School GOs' is available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at 'www.fitchratings.com'.

Legal Analysis Can Strengthen View of California School GOs (San Diego USD Proposition 39 Bonds Considered Special Revenue Obligations)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873430

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View source version on businesswire.com: http://www.businesswire.com/news/home/20151111006140/en/

Fitch Ratings
Amy Laskey
Managing Director
+1-212-908-0568
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Karen Ribble
Senior Director
+1-415-732-5611
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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