DALLAS -- Moody's Investors Service yesterday said it will not rate Colorado schools under a new state-backed credit enhancement program but will continue to rate districts individually.
Supporters of the program -- rated single-A by Standard & Poor's Corp. -- say it could be jeopardized if districts take issues to market with a split rating.
"Everybody has assumed that they would be operating with a single-A rating from Standard & Poor's," said Dee Wisor, a bond lawyer at Sherman & Howard in Denver, who is the author of the program. "What could be detrimental is a split rating."
Before lawmakers passed the Colorado Bond Payment Act this year, Mr. Wisor said Wall Street analysts were consulted on the program, adding that it was apparent that "Moody's didn't place the same sort of value in the program as S&P."
He said Moody's preferred a constitutionally guaranteed program like those used in Michigan and Texas to secure school debt.
Ditmar Kopf, senior analyst at Moody's, said yesterday that the agency issued an unsolicited three-page statement on the program to clarify its position.
Further, he saud the agency will provide unsolicited ratings for future issues by districts selling debt in parity with outstanding bonds already rated by Moody's. That is the case with a $6.795 million issue expected to be sold by October by the Douglas County School District.
Moody's currently rates the district's general obligation debt Baa. Even though Douglas County has not sought a rating on the issue, Mr. Kopf said the agency will issue one for the parity debt. That could produce a split rating on the sale.
So far, only one Colorado district has completed a sale under the new guarantee program. The North Conejos School District sold a $1.6 million issue in June that carried a single A from Standard & Poor's.
Investment bankers, bond lawyers, and public officials have supported the program because it would provide cost-free credit enhancement for scores of Colorado schools that have historically issued bonds that were unrated or barely investment grade.
The credit enhancement program guarantees that bond payments would not be missed because the state treasurer is authorized to make debt service if a district cannot. If a payment is made by the treasury, those funds are repaid from future state aid payments due the district.
All of the state's 176 school districts are eligible for the program.
Because of that mechanism, Standard & Poor's said it would provide a single-A rating to districts that show a historical coverage of 1.0 times.
"We are comfortable with our position," said Todd Whitestone, managing director at Standard & Poor's. "We are comfortable with the protection given bondholders."
But Moody's yesterday said the guarantee process was one reason it would not provide a blanket rating for all districts participating in the program.
"Because of all the contacts that would have to made in a tight time frame, we felt there could be a default anyway under the program," Mr. Kopf said. The series of actions to ensure a payment is not missed must occur within 24 hours, he said.
The agency said the success of the program was "contingent upon a district's continuing eligibility to receive state equalization aid" which could change during the life of a bond issue.