Fitch Downgrades El Rancho USD, CA's GOs to 'A'; Rating Watch Negative

SAN FRANCISCO--()--Fitch Ratings has downgraded the following El Rancho Unified School District, California's (the district) general obligation bonds (GOs):

--$13.8 million GOs (election of 2003) series 2003A, 2004, 2005, 2007 to 'A' from 'A+'.

The bonds have been placed on Rating Watch Negative.

SECURITY

The bonds are secured by an unlimited property tax on all taxable properties in the district.

KEY RATING DRIVERS

NEGATIVE FINANCIAL CERTIFICATION: The downgrade reflects material deterioration of the district's multi-year financial projections and negative financial certification by the Los Angeles County Office of Education (COE). The negative certification indicates the district will not meet its financial obligations in the current or following fiscal year based on first interim projections, including maintenance of the district's legally required minimum 3% unrestricted general fund balance.

COE ASSIGNS FISCAL ADVISOR: The COE has assigned a fiscal advisor (FA) with stay and rescind powers to assist the district in rectifying its strained financial position.

FULL CREDIT REVIEW PLANNED: The Rating Watch Negative reflects the possibility that the rating may be downgraded further, pending discussion with district management. The one-notch downgrade to 'A' is an interim rating action based on limited information available to Fitch. The 'A' rating reflects the highest rating level the district could achieve based on that information.

RATING SENSITIVITIES

FURTHER DOWNGRADE LIKELY: Fitch expects the rating will be downgraded further following its pending review, based on information now available to Fitch, unless management can demonstrate that the district's current financial position and projections are materially better than suggested by publicly available sources.

CREDIT PROFILE

COE NEGATIVELY CERTIFIES FIRST INTERIM, ASSIGNS FA

In January, the COE reviewed the district's first interim financial report, corrected certain flawed revenue assumptions, and projected the district would not meet its financial obligations by fiscal year end 2014, including maintenance of a minimum 3% general fund balance. According to the COE, the modified projections show a decline in fund balance to just $810,000 by fiscal year end 2014, with substantial negative balances in the two following years. District management disputes the COE's projections that indicate a fund balance drawdown to less than 3%.

The COE negatively certified the district's first interim financial report, and assigned a FA to the district. COE-appointed FAs generally assist fiscally stressed districts with financial and budgetary decision-making and the assigned FA was granted stay and rescind power over board decisions. Fitch views as a positive this additional layer of oversight and financial expertise. However, FAs do not have the ability to impose decisions on the board, to modify existing labor contracts, or to impose concessions on bargaining units.

Fitch intends to conduct a full review of the district's credit rating as soon as possible, including a discussion with management. An inadequate ability to sufficiently address these concerns likely will lead to further negative credit actions over the short term.

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

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820919

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Scott Monroe
Director
+1-415-732-5618
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Scott Monroe
Director
+1-415-732-5618
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com