Cobb County School District Credit Rating

CREDIT RATING INFORMATION

Moody’s Investor’s Service (“Moody’s”) reviewed for indicative credit purposes the business fundamentals and financial condition of the Cobb County School District and on December 17, 2015, assigned a Triple A (Aaa) Credit Rating to the Cobb County School District (CCSD).

This rating is the highest credit rating available for a government entity and the first time in history that the district has received the highest rating. The Aaa rating reflects the district’s sizable and diverse tax base, sound reserve position characterized by conservative budgeting and formal financial policies and an above average pension burden, mitigated by the absence of any long-term debt.

Credit ratings represent the credit worthiness of corporations and government entities. In investment, the credit ratings are published by credit rating agencies and used by investment professionals to assess the likelihood a debt can be repaid. Ratings play a critical role in determining how much companies and government entities that issue debt have to pay to access credit markets. Ratings determine borrowing costs and the amount of interest they pay on their issued debt.

A Credit rating is also an indicator of an organization’s skill and experience with regard to financial operations including budgeting & forecasting, cash management, financial reporting, accounting and financial management.

The Credit rating industry is highly concentrated with the two largest rating agencies, Moody’s Investors Service and Standard & Poor’s having roughly 80% market share globally.

It is extraordinarily difficult to achieve an Aaa rating. As has been widely reported in the business press, the 2008-2009 crash was so bad that by the end of the economic downturn period, there were only THREE S&P 500 companies left that could boast a AAA credit rating. An evaluation of state governments reveals that out of the 50 states in the US, only 15 states (30%) currently hold a AAA Credit Rating.

It is even more difficult for public school districts to achieve a Aaa rating because of limited diversity in General Fund revenue streams and limited flexibility to cut services because students in public schools have to receive an education. By contrast, cities and counties have a wider range of revenue options and have more flexibility in their expenditure budgets. An evaluation of public school districts in the United States reveals that only 0.50% hold a Aaa Credit Rating.

Credit Ratings are assigned using letter designations which represent the quality of investments and organization financial management. The following chart provides a listing of rating designations:

 

Rating Tier Definitions:

Moody’s Standard & Poor’s Fitch Credit Rating Description
 
Highest Prime Grade
Aaa AAA AAA An Obligor has Extremely Strong capacity to meet its financial commitments.
 
High Grade
Aa1 AA+ AA+ An obligor has Very Strong Capacity to meet its financial commitments
Aa2 AA AA An obligor has Very Strong Capacity to meet its financial commitments
Aa3 AA- AA- An obligor has Very Strong Capacity to meet its financial commitments
 
Upper Medium Grade
A1 A+ A+ An obligor has Strong Capacity to meet its financial commitments
A2 A A An obligor has Strong Capacity to meet its financial commitments
A3 A- A- An obligor has Strong Capacity to meet its financial commitments
 
Lower Medium Grade
Baa1 BBB+ BBB+ An obligor has Adequate capacity to meet its financial commitments
Baa2 BBB BBB An obligor has Adequate capacity to meet its financial commitments
Baa3 BBB- BBB- An obligor has Adequate capacity to meet its financial commitments
 
Non-investment Grade Speculative
Ba1 BB+ BB+ An obligor is Less Vulnerable in the near term than other lower-rate obligors
Ba2 BB BB An obligor is Less Vulnerable in the near term than other lower-rate obligors
Ba3 BB- BB- An obligor is Less Vulnerable in the near term than other lower-rate obligors
 
Highly Speculative
B1 B+ B+ An obligor is More Vulnerable than obligors rate BB
B2 B B An obligor is More Vulnerable than obligors rate BB
B3 B- B- An obligor is More Vulnerable than obligors rate BB
 
Caa1 CCC+ CCC+ Substantial Risks
 
Caa2 CCC CCC Extremely Speculative
 
Caa3 CCC- CCC- Default Imminent with little prospect for recovery
 
C D D In Default

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