ATLANTA -- Moody's Investors Service sharply expanded its coverage of Kentucky debt last week, saying it expects an A or higher for all long-term school district financings there because of the commonwealth's strong support for education.
That marks the first time Moody's has said it would consider a minimum rating for all of a state's school districts.
The rating agency, which had previously rated the debt of only seven Kentucky school districts, said a minimum A rating would apply -- effective last Thursday -- to all outstanding obligations held by 55 school districts.
The new policy will result in upgrades of three of the seven issues previously rated.
Moody's said it has rencently reviewed the 55 issuers in conjunction with their participation in the Kentucky Interlocal School Transportation Association's first revenue bond issue, a pooled lease financing scheduled for competitive sale tomorrow. The agency also last week awarded the $22 million issue an A rating.
Beyond the 55 school districts, the agency said it expects to assign at least an A rating to any debt issued by Kentucky's 121 remaining school districts, pending individual analysis.
"This widening of our ratings for Kentucky issuers recognizes the recent strong commitment the state has made to local school districts," said Marcy Edwards, vice president and manager of Moody's Southeast Region.
Ms. Edwards said its new policy on Kentucky school debt comes in response to the state's improved oversight of local school districts, particularly its commitment to "intercept" state aid due a school district to prevent a bond default. She said Moody's has also been encouraged by the large amount of funding the state now provides its school districts.
Those improvements, she said have been particularly conspicuous since the Kentucky legislature overhauled the state's education system in 1990. That legislation followed a state Supreme Court decision declaring the school system unconstitutional because of funding inequities.
Under the 1990 legislation, Kentucky's Department of Education can take over the financial management of school district that runs a recurring deficit or defaults on debt issue. In addition, state education officials are empowered to oust negligent or dishonest school board officials, and can disapprove a school district's budget if it does not provide for debt service.
Under the "intercept" program, districts must place funds for debt service with the paying agent 10 calendar days before the due date. If the school district has not made such payment it must notify the department at least eight days before the due date. At that time the department can opt to use state aid payments to satisfy the district's debt service obligation.
In 1990, the legislature increased state support for education over the 1990-1992 biennium by about $1.5 billion.
Ms. Edwards said the new ratings depend on the state's continuing efforts to monitor and provide aid to local school districts.
"We are very pleased with the improvement in the ratings of Kentucky school district debt," Ron Moubray, finance director for the state's education department, said Friday. "It can't help but broaden our access to the market."
Mr. Moubray also said he anticipates that more lease revenue bonds will be sold by the Kentucky Interlocal School Transportation Association, which will use proceeds of its first issue to buy 499 school buses. He said the association is likely to have yearly sales for school buses that could total about $40 million annual.
Mr. Moubray said the association is also considering selling lease financings to fund school district purchases of computers. Such a program, he said, could possibly total as much as $500 million in the next four or five years.
The association was made possible by a compact between five school districts in July, he said.
Amy Hamburg, a Moody's senior analyst, said that three county school districts whose debt had been rated Baa1 -- Montgomery, Gallatin, and Madison -- will now be rated A. She said that four districts retain their previous ratings: Lexington-Fayette Urban County Government, at A1; and Daviess, Mayfield Indepedendent School District, and Warren County at A.
Ms. Hamburg estimated that the 55 Kentucky school districts now rated by Moody's have a total of about $400 million of bonds outstanding. She said the most recent figures available from the department of education peg the debt held by the 55 school districts at $396 million as of June 30, 1990.