TMCnet News
Fitch Rates Milwaukee, WI's $180MM School RANs 'F1+'Fitch Ratings has assigned a short-term rating of 'F1+' to $180 million Milwaukee, Wisconsin school revenue anticipation notes (RANs) series 2016 M8. Fitch also affirms the 'F1+' rating on the city's $90 million RANs series 2016 R1. The RANs are expected to sell via competitive sale on October 6. Proceeds will be used for school cash flow purposes. SECURITY Note principal and interest repayment is secured by an irrevocable pledge of school state aid payments and all school operations fund revenues for the 2016-17 fiscal year that are due and not yet paid to the city or otherwise pledged or applied. Note interest repayment is also secured by a pledge of surplus revenues of the debt service fund of the city. KEY RATING DRIVERS RELATIONSHIP TO CITY RATING: While the notes are not general obligations of the city, Fitch believes the city's management of the Milwaukee Public Schools' (MPS) funds and provision of liquidity for MPS create a relationship that supports the highest long-term rating on the notes. MPS effectively functions as a department of the city (GOs rated 'AA') according to state statute. SUFFICIENT, TIMELY STATE AID: Although all available school operating revenue for fiscal 2017 is pledged to note repayment, the authorizing resolution directs city officials to segregate the June and July 2017 state aid payments for payment of the full amount of the notes. Fitch expects a satisfactory level of additional resources would be available to make the repayment in the event of reduced or delayed state aid. Interest on the RANs is additionally secured by surplus revenues of the city's debt service fund. The city historically has had adequate financial resources to cover note interest. REGIONAL ECONOMIC CENTER: Milwaukee serves as the economic engine for the surrounding region and has a fairly diverse economic and employment base, but residents exhibit below-average wealth and a relatively large proportion are below the poverty level. The local economy maintains a reduced but still above-average reliance upon manufacturing that in the past has created vulnerabilities to recessionary employment shifts. CITY LONG-TERM RATING: The 'AA' rating reflects the city's stable financial performance over time, strong gap-closing capacity, and moderate long-term liabilities level. A demonstrated capacity to cut spending and sufficient financial cushion offset Fitch's expectation for limited revenue growth. RATING SENSITIVITIES LONG-TERM RATING: The rating on the notes is sensitive to changes in the city's long-term credit fundamentals. A change in the city's GO rating could result in a downgrade of the note rating. The Stable Outlook on the city's GO rating reflects Fitch's expectation that such a change is unlikely. CHANGE IN SCHOOL FUNDING LANDSCAPE: Although not anticipated, a notable shift in the level or timing of state funding for school districts could affect the short-term rating. CREDIT PROFILE Milwaukee, the largest city in the state of Wisconsin, encompasses a 97-square mile area located adjacent to Lake Michigan, 90 miles north of Chicago. The city's population of nearly 600,000 has shown stability or marginal growth since the 2000 census, reversing a multi-decade trend of decline. The school system's service area is coterminous with the city. MPS functions effectively as a department of the city according to state statute, and the city acts as custodian of MPS's funds. It is governed by the Milwaukee Board of School Directors (MBSD), and the city levies and collects the taxes necessary to support the separately adopted MBSD budget. MPS independently provides elementary and secondary education and independently controls the budget but lacks authority to issue debt directly. The city issues on MPS's behalf, including short-term notes to help smooth MPS's cash flow throughout the year. The city also provides liquidity directly, when needed, for school operations. SUFFICIENT, TIMELY STATE AID FOR RAN REPAYMENT State equalization aid, which is primarily derived from state income taxes, is generally unrestricted financial assistance to school districts to fund a broad range of expenditures. The aid in any fiscal year is computed using the prior fiscal year's enrollment and equalized property valuations. The state distributes school aid five times a year based on an allocation formula and last year MPS received 15% of total state aid in September, 25% in December, 25% in March, 34% in June and 2% in July. Pursuant to a city resolution, the city treasurer will segregate the June state aid payment to pay principal of the RANs. Note repayment is due on Oct. 1, 2017. Projections show adequate coverage in the June segregation month with available cash balances covering note principal by 1.26x. The city has demonstrated willingness and ability to provide operating cash flow support to MPS at multiple points throughout the fiscal year. Fitch expects the city to continue to provide strong liquidity support to MPS in fiscal 2017 and beyond. NARROWLY BALANCED MPS FINANCES Similar to many urban school districts in the U.S., MPS is challenged in recent years to provide educational services to a largely disadvantaged student population in an environment of declining-to-stagnant state aid, waning enrollment, and a contracting tax base. Long-term conditions have improved somewhat in recent years, with relative stabilization evident in enrollment, state aid and the tax base. State equalization aid accounts for a high but declining proportion of MPS revenues. In fiscal year (FY) 2015, state aid amounted to 60% of general fund expenditures, down from 64% in FY2008. MPS operate in a tight financial environment, managing to a fairly narrow unreserved general fund balance reserve, equivalent to 4.1% of spending in fiscal 2015. Operations are generally structurally balanced each fiscal year with mild general fund net operating deficits after transfers attributable to deposits to the other post-employment benefits (OPEB) trust at the end of each fiscal year, for which the district receives favorable reimbursement from the state. For more detail regarding the city's long-term general obligation rating, please see the release 'Fitch Rates Milwaukee, WI's GOs 'AA'; Outlook Stable' (May 2016), available at www.fitchratings.com. Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis. Applicable Criteria Rating U.S. Public Finance Short-Term Debt (pub. 17 Nov 2015) https://www.fitchratings.com/site/re/873508 U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016) https://www.fitchratings.com/site/re/879478 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012322 Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012322 Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEB SITE AT 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. Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001. View source version on businesswire.com: http://www.businesswire.com/news/home/20160928006436/en/ |
