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Rating Action: Moody's assigns Aa1 UND/Aa2 ENH ratings to Denver City & County SD 1, CO's GO Bonds, Series 2022; outlook stableGlobal Credit Research - 02 Mar 2022New York, March 02, 2022 -- Moody's Investors Service has assigned Aa1 underlying and Aa2 enhanced ratings to Denver City & County School District 1, CO's $345 million General Obligation Bonds, Series 2022. Moody's maintains the district's Aa2 issuer rating and Aa1 rating on outstanding general obligation unlimited tax (GOULT) debt. The issuer rating reflects the district's ability to repay debt and debt-like obligations without consideration of any pledge, security or structural features. Post sale, the district will have $2.2 billion of GOULT debt outstanding. The outlook is stable.RATINGS RATIONALEThe Aa2 issuer rating reflects the district's rapidly expanding regional economy, which fuels very strong full value per capita and healthy resident income. District enrollment experienced a material decline with the onset of the pandemic. Though stable in fiscal 2022, management anticipates enrollment will continue to experience small but manageable declines over the next several years. The financial impact will likely be muted given the state's enrollment smoothing mechanism, coupled with the district's healthy operating liquidity and reserves which are supported by permanent voter-approved mill levy overrides. Positively, the district has not utilized all of the mill-levy override authorized by voters and is being strategic in its deployment. The rating also incorporates elevated long-term liabilities following sizable new money issuance each of the past two years and the state's missed $225 million PERA contribution in fiscal 2021 due to the pandemic; the fixed cost burden is manageable.The district's general obligation unlimited tax (GOULT) debt is rated Aa1, one notch above the issuer rating, reflecting Colorado's (Aa1 stable) school district GO bond security features that include the physical separation through a "lockbox" for pledged property tax collections and a security interest created by statute.The Aa2 enhanced rating is based on the rating of the Colorado School District Enhancement Program and primarily reflects the state's liquidity, the program's strong program oversight, and guarantee of timely payment by the state in the event of a shortfall.RATING OUTLOOKThe stable outlook reflects the expectation that the district's sizable and expanding service area will continue to drive revenue growth. Additional stability is derived from the material influx of federal support resulting from the pandemic along with increased state funding that is expected through fiscal 2024. The state's 2018 pension reform will benefit the district over the long term, but elevated ongoing contribution gaps will persist for the foreseeable future.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Continuation of positive financial operations leading to notably improved operating reserves- Material moderation of long-term liabilities and fixed costs- Sustained trend of improved enrollmentFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Material increase in long-term liabilities and fixed costs, particularly with regards to pension liabilities- Erosion of reservesLEGAL SECURITYThe outstanding GOULT bonds are payable from an ad valorem tax levy on all taxable property sufficient to pay the principal of and interest on the bonds without limitation as to rate or amount. General obligation debt in Colorado is secured by state statute, and property taxes dedicated to GO bonds are directly remitted by the counties to the trustee. The district's GOULT bonds are further secured by the state's commitment to cover debt service shortfalls pursuant to the Colorado School District Enhancement Program codified in Colorado statutes Title 22, Article 41, section 110 (22-41-110).USE OF PROCEEDSProceeds of the bonds will fund capital improvements to district facilities.PROFILEDenver Public Schools is the largest school district in the state with a non-charter student enrollment of approximately 70,000 as of September 2021; the district estimates another 20,000 students are enrolled in district authorized charter schools. The district boundaries are coterminous with the City and County of Denver (Aaa stable), which serves as the capital to the State of Colorado (Aa1 stable).METHODOLOGYThe principal methodology used in the underlying rating was US K-12 Public School Districts Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1202421. The principal methodology used in the enhanced rating was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Kenneth Surgenor Lead Analyst REGIONAL_SOUTHWEST Moody's Investors Service, Inc. 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