ATLANTA -- Moody's Investors Service said yesterday that certain bonds of local school districts in Georgia that participate in the state's "default avoidance" program would receive an automatic A1 rating.

Moody's has programs guaranteeing school district debt ratings in five other states: Kentucky, Michigan, Minnesota, New Jersey, and Texas. In each case, a participating school district permits the state to hold back aid appropriated to it in order to cover debt-service shortfalls, if necessary.

The specific default avoidance mechanism is different in all six states, producing guaranteed Moody's ratings that range from A in Kentucky to Aaa in Texas.

"In Georgia there is an intercept program that can only make use of appropriations due school districts in a given fiscal year," said David Alter, a Moody's assistant vice president. "Our rating tracks this window."

Because of this peculiarity in Georgia's program, Alter said Moody's stipulates that available state appropriation levels must be equal to at least two times the maximum annual debt service for all of the school district's debt secured by the program.

To further guard against insufficiency of funds from participants, Moody's also stipulates that the district have two months of appropriations available.

The guaranteed rating covers only debt issued after Moody's announcement yesterday.

To qualify for the program, a school district must submit a request to Georgia asking that state appropriations be withheld if it is unable to cover debt service.

If a participant then experiences a deficiency in the debt service fund of a bond issue, the custodian will inform the state Board of Education on the 15th day of the month preceding the next debt service payment. The board is then required to transfer the funds within two business days before the payment is due.

As part of the corrective plan, a district that ends its fiscal year in a deficit position must reserve a portion of its property tax collections to return the district to a positive financial position.

Under the program, the state Board of Education may even force a school district to raise property taxes or lower expenditures to cover the debt-service shortfall.

In a report accompanying the ratings announcement, Moody's said: "The rating considers the availability of the intercept arrangement authorized by statute and by resolution of the school district, the program's structure which ensures sufficiency of funds, the State Department of Education's strong oversight into local district performance, the requirement that districts and the state DOE sign parallel agreements for the state to pay debt service if necessary, and the state's own strong and stable financial performance."

Alter said that a higher rating than A1 would be assigned if warranted by a school district's own credit standing.

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