Fitch Affirms Ohio's School District Credit Enhancement Program at 'AA'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the programmatic rating on the State of Ohio's school district credit enhancement program at 'AA'. The Rating Outlook remains Stable.

SECURITY

Before the bond payment date, the state department of education has covenanted to intercept state school foundation payments should a district be unable to make required debt service payments.

KEY RATING DRIVERS

STRINGENT PROGRAM PARTICIPATION REQUIREMENTS: Participating districts must be approved by the Ohio Department of Education (ODE) and Ohio Office of Budget and Management (OBM) for program participation and ODE and OBM participation requirements are stringent.

TIMELY INTERCEPT MECHANISM: State foundation program payments are forwarded by ODE to the bond paying agent or registrar if, prior to bond payment date, the district has not transmitted sufficient funds to cover debt service.

STRONG STATE OVERSIGHT OF SCHOOL DISTRICTS: State oversight of school districts is strong, helping to prevent unforeseen financial erosion.

STRONG STATE CREDIT RATING: Ohio's 'AA+' general obligation (GO) rating reflects the state's careful financial management, ongoing record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden. Debt is supported by an economy that is broad and diverse.

RATING SENSITIVITIES

The rating is sensitive to changes in the state's 'AA+' bond rating on which this rating is based, as well as changes in the statutes, regulations, or administrative procedures governing the program.

CREDIT PROFILE

Upon request, Fitch will assign the 'AA' rating to GO bonds of Ohio school districts approved for participation in the program based on the credit protections established by Chapter 3317, Section 18, of the Ohio Revised Code. Participating Ohio school districts must be approved by ODE and OBM to qualify for the 'AA' rating. Participation requirements are stringent, including 2.5 times coverage of maximum annual debt service by state foundation aid on proposed bonds and any outstanding obligations covered by the program, and 1.25x required coverage of semiannual debt service payments from available monthly foundation aid disbursements. Moreover, a 2008 regulatory change required that coverage calculations be based only on the unrestricted portion of foundation aid, further tightening program requirements.

Program mechanics are strong. Ohio law requires ODE to forward to a bond paying agent or registrar state foundation program payments otherwise due to a participating school district if, prior to the bond payment date, the district has not transmitted funds sufficient to cover a required debt payment. ODE and OBM exercise strong statutory oversight of school districts to help prevent financial erosion, further reducing the potential for bond defaults. The administrative program rules are required by statute to be reviewed every five years, with the next review scheduled for Jan. 31, 2019. At this time, there are no proposed changes to program mechanics or structure.

The state's 'AA+' GO rating is based on its careful financial management, ongoing record of maintaining fiscal balance, and a moderate, rapidly amortizing debt burden. Debt is supported by an economy that is expanding but at a slower pace than immediately following the recession. The recession had a widespread impact on the Ohio economy, accelerating a longstanding slump in manufacturing and weighing on the slowly growing service sector. While there has been steady year-over-year job growth since July 2010, the state has yet to fully recover the jobs lost during the recession.

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

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from IHS Global Insight.

Applicable Criteria and Related Research:

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

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

--'Rating Guidelines for State Credit Enhancement Programs' (April 18, 2013).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

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

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Rating Guidelines for State Credit Enhancement Programs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704880

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983302

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Contacts

Fitch Ratings
Primary Analyst
Karen Krop
Senior Director
+1 212-908-0661
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Maria Coritsidis
Analytical Consultant
+1 212-908-0514
or
Committee Chairperson
Marcy Block
Senior Director
+1 212-908-0239
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Karen Krop
Senior Director
+1 212-908-0661
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Maria Coritsidis
Analytical Consultant
+1 212-908-0514
or
Committee Chairperson
Marcy Block
Senior Director
+1 212-908-0239
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com