School district credit rating upgraded

Published 12:00 am Tuesday, October 15, 2002

RESERVE – Moody’s Investors Service, one of the nation’s primary credit rating firms, recently upgraded the St. John the Baptist Parish School District’s bond rating, prompting offers of record low 20-year interest rates that will save taxpayers hundreds of thousands of dollars in the coming years.

In response to the upgrade, the School Board voted this week to accept a bid from Morgan Keegan & Company, which offered 4.06 percent interest on the purchase of $5 million of general obligation school bonds. The bonds will fund the system’s K-8 reconfiguration plan.

The accepted bid offered the lowest interest rate among six qualified bidders, a school district spokesperson said.

Grant Schlueter, a district bond attorney for Foley and Judell, the School Board’s financial consulting firm, told board members some of the bid proposals received were the lowest bids he had witnessed in almost 30 years of working with government entities throughout the state.

He credited the district’s recent bond rating upgrade from Moody’s, the district’s ability to qualify with two national bond insurers, and changes in the financial market for the low bids.

“This is quite an accomplishment,” Schlueter said. “I can’t recall any 20-year general bond issue that has come close to it. This will save taxpayers several hundred thousand dollars from what we would have normally expected.”

Moody’s assigned the district a Baa1 rating, which was two steps better than its previous rating of Baa3.

“A two-step upgrade in a bond rating is very rare. Rating agencies are reluctant to do that unless the evidence truly warrants it,” Schlueter said. “The people at Moody’s are well aware of what is going on in St. John Parish, and particularly this school district.”

Schlueter noted the higher the bond rating, the lesser the risk associated with a particular entity, and therefore better interest rates and investment opportunities are made available to that entity. An entity that qualifies for bond insurance can further reduce the interest rate on its bonds.

Felix Boughton, executive director of business and finance for the school system, said the improved bond rating was expected to lower the average annual interest payments on the district’s 20-year bond from about $125,000 to somewhere around $105,000. However, with the accepted bid offering a lower-than-expected interest rate, even more money will be saved, he said.

“We had anticipated saving about $400,000 overall because of the bond rating, but now we expect to save more than that. We’ve not yet calculated the savings, but it will be even better than we had hoped for,” Boughton explained.

Schlueter said Moody’s cited the school system’s modest debt levels and the school system’s sound financial operations as factors for the upgrade.

“Moody’s recognizes that your reserves are adequate and have been well sustained, and your debt levels are not much and they are paid down quickly,” he said. “You received quite an endorsement from them.”

The school system, as of June 30, 2001, had accumulated a general fund surplus of $6,647,492, which is equivalent to 16 percent of the general fund budget – exceeding by three times the legislative auditor’s recommended amount, Boughton said.