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NOTICE OF MATERIAL EVENT
This material event notice will be sent to the Municipal Securities Rulemaking Board pursuant to
Securities Exchange Commission Rule 15c2-12(b)(5)(i)(C) and (D)
Notice is hereby given that the rating with respect to the Grossmont Union High School
District for the general obligation bonds indicated below was downgraded by Moody’s Investors
Service (“Moody’s”). As of October 24, 2013, the rating for Grossmont Union High School
District, the issuer of the bonds, has been downgraded to “Aa3” from “Aa2 - Negative Outlook”.
The former negative outlook does not apply to the current “Aa3” rating. For more information
regarding the rating change, please contact Moody’s Investor Service.
Issuer:
Grossmont Union High School District
Name of Financing(s):
General Obligation Bonds, Election of 2004, Series 2004
General Obligation Bonds, Election of 2004, Series 2006
General Obligation Bonds, Election of 2004, Series 2008
2009 General Obligation Bonds, Election of 2008, Series A
2010 General Obligation Bonds, Election of 2008, Series B
2011 General Obligation Bonds, Election of 2008, Series C
2011 General Obligation Bonds, Election of 2008, Series D, Qualified School
Construction Bonds
2013 General Obligation Bonds, Election of 2008, Series E
General Obligation Refunding Bonds, Election of 2004, Series 2011A
General Obligation Refunding Bonds, Election of 2004, Series 2011B
General Obligation Refunding Bonds, Election of 2004, Series 2012
Base CUSIP:
399262
Description of Material Event Notice (check one):
____ Principal and interest payment delinquencies
____ Non-payment related defaults, if material
____ Unscheduled draws on debt service reserves reflecting financial difficulties
____ Unscheduled draws on credit enhancements reflecting financial difficulties
____ Substitution of credit or liquidity providers or their failure to perform
____ Adverse tax opinions, IRS notices or events affecting the tax status of the security
____ Modifications to rights of security holders, if material
____ Bond calls, if material
____ Defeasances
____ Release, substitution or sale of property securing repayment of the securities, if material
√ Rating changes
____
____ Tender offers
____ Bankruptcy, insolvency, receivership or similar event of the obligated person
____ Merger, consolidation, or acquisition of the obligated person, if material
____ Appointment of a successor or additional trustee, or the change of name of a trustee, if material
____ Other material event notice (specify)______________________________________________
New Issue: Moody's downgrades to Aa3 Grossmont Union High School District's
(CA) GO Bonds and assigns Aa3 to 2013 GO Bonds
Global Credit Research - 24 Oct 2013
Aa3 rating applies to $440 million in outstanding GO debt after the current issue
GROSSMONT UNION HIGH SCHOOL DISTRICT, CA
Public K-12 School Districts
CA
Moody's Rating
ISSUE
RATING
2013 General Obligation Bonds (Election of 2008, Series E)
Sale Amount
$10,000,000
Expected Sale Date
10/31/13
Rating Description
General Obligation
Aa3
Moody's Outlook NOO
Opinion
NEW YORK, October 24, 2013 --Moody's downgrades Grossmont Union High School District's outstanding GO
ratings to Aa3 from Aa2/NEG. The negative outlook has been removed. Concurrently, Moody's assigns a Aa3
rating to Grossmont Union High School District's (CA) 2013 General Obligation Bonds, Election of 2008, Series E.
The Aa3 rating applies to approximately $440 million in outstanding General Obligation debt, including the current
issue.
RATINGS RATIONALE
The downgrade to Aa3 primarily reflects the district's very low level of liquidity and narrowed financial flexibility
given several years of draws to General Fund reserves. The rating action also incorporates the district's very
large tax base, average wealth levels, and an above average debt leverage position. The strength of the voterapproved, unlimited property tax pledge securing the bonds and the well-established levy and collection history for
the debt service levy is also factored into the rating action. The county rather than the district levies, collects, and
disburses the district's property taxes, including the portion constitutionally restricted to debt service on general
obligation bonds.
STRENGTHS
- Sizable tax base for current rating level
-Socio-economic indicators consistent with current rating level
- Participant in the San Diego metro economy
CHALLENGES
- General Fund balance and liquidity levels are thin and limit the district's financial flexibility
- Anticipated decline in General Fund balance
DETAILED CREDIT DISCUSSION
LARGE RESIDENTIAL TAX BASE STABILIZES; INCOME LEVELS APPROXIMATE US AVERAGE
The district serves residents of the central and eastern portions San Diego County, including the cities and
communities of Alpine, Bonita, El Cajon, Jamul, Lakeside, La Mesa, Santee and Spring Valley. The district's tax
base is very strong and much larger than the median for its rating category at $38 billion in 2014. The tax base
grew 2.7% in 2014, the third year of tax base growth after declines of 5.2% and 1.5% in 2010 and 2011,
respectively. Full value per capita as a measure of wealth at $82,754 falls below the state median of $103,484.
Socio-economic indicators for the district's residents approximate the US average; as of the 2000 census, median
family income and per capita income were 104.0% and 97.1% of US levels, respectively. The district's economy
benefits from its proximity to several employment centers within the San Diego metropolitan area. The county
unemployment rate of 7.8% in July 2013 remains below the state unemployment rate of 9.3% in the same month,
and approximates the national rate of 7.7%.
NARROW GENERAL FUND LIQUIDITY AND REDUCED FINANCIAL FLEXIBILITY
The rating downgrade reflects the district's reduced financial flexibility given a very narrow cash position and
continued draws on General Fund reserves. The rating reflects the challenges that the district faces as its
enrollment levels continue to decline and are expected to do so for a few years before growth in feeder elementary
school districts is expected to turn the high school district's declining enrollment trend.
The district ended fiscal year 2012 with $28.8 million in General Fund reserves or an adequate 15.8% of 2012
General Fund revenues. The ending results for fiscal year 2012 reflect a $7.47 million operating deficit. Unaudited
results for fiscal year 2013 show the district drawing on reserves again, however, at a reduced rate. The unaudited
reduction to reserves in fiscal year 2013 was $5.99 million bringing General Fund balance to $22.3 million or 13.1%
of revenues.
The district's 2014 budget calls for an additional draw to General Fund reserves to balance operations. The
magnitude of the budgeted draw is consistent with the draw in 2012 at $5.8 million. The budgeted draw to reserves
would bring General Fund balance to 9.7% of revenues. The 2014 budget is conservative in that it assumes the
revenue limit school district funding formula and does not take into account the additional new money that the
district will receive as a result of the local control funding formula (LCFF). As a result of the new formula, the
district will receive an additional $4.5 million in fiscal year 2014. Despite the new money that is expected to flow to
the district, the district expects it will still draw on reserves, however at a slightly lower level. The district projects
to end fiscal year 2014 with a $3-4 million draw in reserves given the new funding formula's effects. Given the
district's continued draw on reserves into the current fiscal year, and overall lower reserve levels, the district falls
more comfortably in line with Aa3 school districts.
The district's narrow liquidity position results in reduced operating flexibility and dependence on the internal
lending, county short-term borrowing, and the TRAN market to meet its operating cash flow obligations. The
district will likely continue to manage these challenges successfully given the levels of internal borrowing that it
has available. The district ended fiscal year 2012 with a very narrow 1% of revenues. This level of cash, while
reflective of the challenges the district faced as a result of state deferrals solidly place the district with school
districts in the Aa3 rating category.
ABOVE AVERAGE DEBT BURDEN THAT IS STILL ACCEPTABLE FOR THE RATING
Proceeds from the current offering will fund construction, improvement and modernization projects to district
facilities. The current offering is part of the district's 2008 $417 million bond authorization. After the current issue,
the district will have $197 million remaining under the 2008 program. The district's capital plan needs remain low,
as the district's declining enrollment trend requires no expansion of existing facilities and/or new construction.
However, the district's capital plan mainly consists of modernization projects and limited new construction at
several school sites. While the district has no plans to seek new voter-approved debt at this time, they do plan on
issuing against the 2008 authorization as they are able. The plan for issuance includes the use of capital
appreciation bonds. The district's direct debt burden post-issuance at 1.2% is slightly above the state median of
0.9%, and the overall debt burden is above average at 4% compared to the state median of 2.7%. The district also
has a weak debt structure, with a 10-year principal amortization of 29.1%, below both the national and state
averages.
WHAT COULD MOVE THE RATING--UP
- Sizable increase in socioeconomic measures
-Significant and sustained improved financial performance in which reserve and cash levels are returned levels
consistent with higher rating levels
WHAT COULD MOVE THE RATING-DOWN
- Significant deterioration in socioeconomic measures
- Significant contraction in assessed valuation
- Further erosion of financial profile from either narrowing liquidity or continued one-time use of reserves to balance
operating budgets
KEY STATISTICS
Assessed Value, Fiscal 2014: $38 billion
Average annual growth, assessed value, 2009-2014: -0.7%
Median family income, 2000 census: $52,063 (104.0% of US)
Per capita income, 2000 census: $20,964 (97.1% of US)
General Fund balance, Fiscal 2012: $ 28.8 million (15.8% of GF revenue)
Projected General Fund balance, Fiscal 2013 (unaudited: $ 22.3 million (13.1% of GF revenue)
Average daily attendance, Fiscal 2013: 17,754
Overall debt burden: 4.0%
Direct debt burden: 1.2%
Payout of principal (10 years): 29.1%
The principal methodology used in this rating was General Obligation Bonds Issued by US Local Governments
published in April 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory
disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class
of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance
with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating
action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where
the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner
that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for
the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating
outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for
each credit rating.
Analysts
Kristina Alagar Cordero
Lead Analyst
Public Finance Group
Moody's Investors Service
Michael Wertz
Additional Contact
Public Finance Group
Moody's Investors Service
Contacts
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