LOS ANGELES - In a departure from a recent trend. of downgrades, California this week saw Standard & Poor's Corp. lift its rating on lease revenue bonds for a community colleges deal to provisional A from BBB-plus.
The upgrade applies to a $155 million lease revenue bond sale the State Public Works Board plans for next week and a $58 million issue sold in 1991 for community colleges.
"By raising the rating not one but two notches, Standard & Poor's is recognizing California's continuing commitment to investors, as well as to the unique role community colleges play in the state's educational mission," state Treasurer Kathleen Brown said in a news release.
Standard & Poor's said in a statement that its rating outlook is "stable."
Brown said she met with Standard & Poor's officials last month and urged them to reconsider their assessment of the community college lease bonds based on "unique constitutional and statutory protections" for such debt.
The treasurer noted that the community college debt service is paid directly by the state rather than individual campuses, which gives debt service "priority over individual campus spending decisions."
She added that under the California Constitution, school payments for kindergarten through community college also have priority before other state obligations.
Finally, Brown noted that debt service on the lease revenue bonds is considered "a continuous appropriation," meaning it is paid from available cash even in the event of a budget impasse or delay.
Standard & Poor's said in a release Wednesday that "the ratings upgrade reflects the state's commitment to the community college system, as demonstrated through the state's constitutional funding guarantee and its actions through the fiscal 1993 budget crisis."
The A rating is provisional pending acceptance of all projects, which is expected by mid-1994, Standard & Poor's said.
The upgrade brings the agency's rating more in line with those of the other two major rating agencies, which this week maintained their existing assessments on the community college lease revenue bonds. Moody's Investors Service assigned a conditional A1 rating to the new transaction, and Fitch Investors Service assigned an A-plus.
A group led by Lazard Freres & Co. is expected to price the new deal Tuesday.
The bonds are secured by the lease rental payments of 27 community college districts throughout the state for 30 different projects.
California's 71 community college districts are each separate legal entities, but they all report to a state chancellor who has a policy-making and supervisory role. The community colleges' budgeted revenues for fiscal 1993 on a combined basis exceed $2.7 billion, of which almost $1.3 billion are state appropriations.
