Carteret Borough Board of Education, NJ Outlook Revised To Negative On Negative Fund Balance

Stocks and Financial Services Press Releases Thursday February 19, 2015 08:54
NEW YORK--19 Feb--Standard & Poor's

NEW YORK (Standard & Poor's) Feb. 18, 2015--Standard & Poor's Ratings Services said that it revised its outlook on Carteret Borough Board of Education, N.J.'s underlying and long-term ratings to negative from stable and assigned its 'A' long-term rating to the board's series 2015 refunding bonds of its certificates of participation (COPs). At the same time, we affirmed our 'A+' issuer credit rating (ICR) and 'A' long-term rating on the district's appropriation-backed obligations.

"The negative outlook reflects the district's negative fund balance, based on 2014 audited financial results, which record a liability for retroactive salary increases funded through health care savings in the subsequent fiscal year," said Standard & Poor's credit analyst Timothy Little. We recognize the district's fund balance would be positive absent this liability, which is expected to be paid in 2015. However, there is implementation risk as to whether the district will be able to meet its projections.

The 'A' rating reflects what we view as the general creditworthiness of the district, as lessee, and the contractual provisions that include an absolute and unconditional payment provision, subject to annual appropriation.

"The 'A+' underlying rating reflects our opinion of the district's general creditworthiness," said Mr. Little, "including its adequate finances on a budgetary basis and low debt with limited capital needs." Other factors include its: Diverse economy with access to jobs in the greater New York City metropolitan area; andStrong income and wealth.

Revenue pledged under the lease-purchase and ground-lease agreements secures the COPs. Under the lease, the district has agreed to make basic rent payments sufficient to cover annual debt service on the bonds. Lease payments, although subject to the school board's annual appropriation, represent an absolute and unconditional obligation.

Carteret Borough Board of Education is coterminous with Carteret Borough in Middlesex County, about 12 miles south of New York City. The four-square-mile borough serves a population estimate of 23,535. Enrollment (which has been stable) was 3,864 in the 2014–2015 school year at the district's three elementary schools, one middle school, and one senior high school.

"The negative outlook reflects potential downward rating movement within the two-year outlook, based on the district's negative fund balance and implementation risk in the current year as to whether full health care savings will be realized," said Mr. Little. We except liquidity to remain adequate due to the level of delayed state aid received by the district.

For use to revise the outlook to stable, the district would need to improve budgetary performance to structurally balance and sustain reserves on a budgetary basis at a level we would consider adequate. Downward rating movement is possible if projected savings in fiscal 2015 are not realized and reserves do not improve to a level consistent with the current rating.

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