Moody’s downgrades debt rating for McHenry High School District 156

McHenry High School District 156 saw its credit score downgraded last week by Moody’s Investors Service, one of the three major bond rating agencies.

Moody’s cited a slight enrollment decline in the district, as well as its ties to the Illinois pension system as factors in its decision to knock the district’s score for its $43 million in rated debt down a peg to Aa3, according to a news release.

The rating primarily advises institutional investors about how risky it is to lend money to the district.

The rating reflects the district’s “strong available reserves and liquidity, above average incomes and moderate debt leverage,” Moody’s said in a March 16 statement. “The rating also considers the district’s slightly declining enrollment and exposure to an underfunded statewide pension plan. Also considered is the district’s financial reporting that is somewhat weak because it does not report noncash assets and liabilities.”

District 156 Superintendent Ryan McTague said the rating change for the school system has no immediate implications for the district’s borrowing costs.

It was driven by Moody’s new methodology for credit ratings released in January, McTague said. The audit report currently used by the district does not include sections on noncash assets and liabilities, he said.

But the district has time to make the transition to the new accounting system that will address those areas because it does not plan to sell new bonds or refinance existing ones in the near future, McTague said.

Any additional costs to borrow as a result of the new rating should not come into play, he said, because the district isn’t marketing additional bonds after selling $44 million in bonds in 2019. The district locked in its interest rates at the point of sale, when the district had an Aa2 rating.

Those bonds were sold after voters in 2018 passed a referendum allowing the district to take on the debt. They funded the 70,000-square-foot expansion called the Center for Science, Technology and Industry at the McHenry High School West Campus.

Existing bondholders trading their shares of district bonds in the secondary market have no effect on the district as a result, McTague said.

“Furthermore, the Moody’s analyst assigned to the district’s credit rating review stated multiple times that the change in the rating is not a reflection of the district’s management or its financial position,” McTague said. “Rather, he stated that the rating was lowered because of Moody’s change in its methodology and criteria so that it could more uniformly assess credit risk to school districts throughout the country.”

He said all school districts in Illinois are similarly exposed to “contingent risk” because of the state’s underfunded pension liabilities, meaning all districts could be affected if the state shifted pension costs onto local districts.