Milwaukee will take competitive bids Wednesday on $125 million of revenue anticipation notes for the city's public school system.
Ahead of the sale, the rating agencies assigned top short-term marks to the notes that will smooth out the district's cash flow needs as it awaits state aid payments.
The district receives the bulk of its state aid and property tax payments between December and June resulting in a cash flow need of about $160 million. An additional $70 million of commercial paper will be sold in the fall through the city for additional cash flow help.
The notes mature June 15. Katten Muchin Rosenman LLP and Hurtado Zimmerman SC are bond counsel. The city will take bids on blocks in multiples of $25 million, up from a past minimum of $10 million in the past, to accommodate larger fund orders, said Richard Li, public debt specialist in Comptroller Martin Matson's office.
MPS anticipates receiving nearly $500 million in state aid in fiscal 2015, including $171 million in June.
The notes are secured by all revenues in its school operations fund through June 30, including state aid. The funds needed to repay investors are segregated when the state aid is received. The notes are additionally supported by the city's pledge to pay interest on the notes from surplus revenues in its debt service fund.
Additional liquidity is provided to cover debt service from $225 million in the city's pooled governmental fund outside its general, enterprise, trust, and agency funds.
Standard & Poor's assigned its SP-1-plus, Moody's Investors Service its MIG-1, and Fitch Ratings its F1-plus.
After an increase of $18 million in 2014, the district projects that its school operations fund's cash balance at the end of fiscal 2015 will decrease $17.6 million from the beginning of the fiscal year due to discretionary payments to the district's other postemployment benefits trust fund. The city projects that the school operations fund's cash balance will total $42 million at the end of June 2015 after note principal is paid.
"In our view, this amount provides adequate 1.34 times coverage of note principal and 1.32 times coverage of note debt service, including projected interest," Standard & Poor's wrote.
Moody's said the credit benefits from historically accurate cash flow projections and the reliability of pledged revenues while the credit's challenges include the district's narrow cash balance projected for the its School Operations Fund upon note repayment. Favorably, MPS reports that it typically receives its state aid and property taxes on time and in full, with no delays experienced in recent decades.
