Los Angeles Unified School District, the second-largest school district in the nation by enrollment, received an upgrade from Fitch Ratings Wednesday, bringing its GO bonds to AAA and from AA-plus and its issuer default rating to A from A-minus.
It came the same day the district got an outlook boost from Moody's Investors Service ahead of plans to price $500 million in general obligation bonds.
Fitch's issuer default rating upgrade "reflects the district's improved expenditure flexibility as well as operating performance which has outperformed expectations over the last several years."
The GO bond upgrade reflects Fitch's tax-supported rating criteria, which allows GO bonds with pledged special revenue status to be rated up to five notches above the district's issuer default rating.
Moody's lifted the outlook to positive from stable and affirmed its Aa3 rating on the district's $10 billion in outstanding general obligation unlimited tax bonds, its A1 issuer rating, and A2 rating on $97.9 million of certificates of participation.
The positive outlook reflects the expectation that the district will sustain its strong financial performance despite the challenge of ongoing enrollment losses accelerated by the COVID-19 pandemic, Moody's analysts wrote.
The positive outlook incorporates Moody's view of the likelihood of success as the district implements a multi-year plan to drive stability in enrollment figures, align operations with recurring revenue sources, renew its commitment to reducing non-pension post-employment liabilities, and reduce budget uncertainty through multi-year labor agreements.
Following the issuance of the Series QRR bonds, which will carry a sustainability designation with second-party verification, the district will have $9.5 billion in authorized but unissued GOULT debt.
The district has estimated enrollment for fiscal 2023 of 422,276, a 1.9% decline from fiscal 2022' but an improvement from a 4.1% decline in the prior year, according to Moody's.
"While the district continues to face the challenge of declining enrollment, fall 2023 figures suggest that losses accelerated by the pandemic have abated," the rating report said.
In fiscal 2023, enrollment in independent charter schools totals approximately 110,461, a figure that declined 1.7% from the prior year. Independent charter school enrollment accounts for around 20% of district area enrollment, a figure that remains consistent, the ratings agency wrote.
The A1 issuer rating, which reflects the district's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features is based on the "district's extremely large and growing economy as well as financial performance that will remain sound, supported by transformational federal and state grants approaching $5.6 billion and state funding that held the district harmless for enrollment losses driven by the COVID pandemic in fiscal 2021 and 2022, with favorable increases in state aid for the current fiscal year," Moody's wrote.
The Aa3 rating on the district's GOULT bonds is one notch higher than the district's issuer rating. The distinction reflects California school district GO bond security features that include the physical separation through a "lockbox" for pledged property tax collections and a security interest created by statute, Moody's wrote.
Fitch Ratings rates GOULT bonds AA-plus and assigns its A-minus issuer default rating; S&P Global Ratings rates the district's GOs A-plus; and Kroll Bond Rating Agency affirmed its AAA rating on LAUSD GOs Tuesday.
All assign stable outlooks.
"The district is very pleased with the upgrade from Fitch and the positive outlook from Moody's, as well as Kroll's affirmation of their AAA rating on the District's GO Bonds," said Deputy Controller Timothy S. Rosnick.
Institutional pricing of the GOs is expected Wednesday after a retail order period Tuesday.
Morgan Stanley, the bookrunner, and Citi are co-senior managers. Hawkins Delafield & Wood is bond counsel. Public Resources Advisory Group is municipal advisor.
