Rating Action: Moody's assigns initial Aa3 issuer rating to Lake Park-Audubon ISD 2889, MNGlobal Credit Research - 20 Jan 2022New York, January 20, 2022 -- Moody's Investors Service has assigned an initial Aa3 issuer rating to Lake Park-Audubon Independent School District 2889, MN. Concurrently, Moody's has assigned a Aa3 underlying rating and a Aa2 enhanced rating to the district's $22.96 million General Obligation School Building Bonds, Series 2022A. The issuer rating reflects the district's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. Following the sale, the district will have approximately $30 million of GOULT debt outstanding.RATINGS RATIONALEThe Aa3 issuer rating reflects the district's strong resident income, high full value per capita, a modestly positive enrollment trend, and strong financial reserves. The rating also incorporates elevated leverage and high fixed costs upon issuance of the Series 2022A bonds.Governance is a key driver of this initial rating action. The district has built its reserves over the past several years and financial operations are expected to remain strong.The Aa3 rating on the district's general obligation unlimited tax bonds is equivalent to the issuer rating. The district has pledged its full faith and credit as well as an unlimited property tax to pay debt service on the bonds.The Aa2 enhanced rating reflects the additional security provided by the State of Minnesota's School District Credit Enhancement (MSDCE) Program. The Aa2 enhanced programmatic rating is notched once from the State of Minnesota's Aa1 general obligation unlimited tax (GOULT) rating. The enhanced rating reflects sound program mechanics and the State of Minnesota's pledge of an unlimited appropriation from its General Fund should the district be unable to meet debt service requirements. The program's mechanics include a provision for third party notification of pending deficiency. If the school district does not transfer funds necessary to pay debt to the paying agent at least three days prior to the payment due date, the state will appropriate the payment to the paying agent directly. Moody's has received a copy of the signed program application.RATING OUTLOOKOutlooks are typically not assigned to local governments with this amount of debt.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Sustained improvement in reserves and liquidity- Significant decline in long-term liabilities ratio and fixed costs- Upward movement in State of Minnesota's School District Credit Enhancement program rating (enhanced)FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Weakening of the local economy or enrollment trends- Declines in reserves and liquidity- Increased leverage and fixed costs- Downward movement in the State of Minnesota's School District Credit Enhancement program rating (enhanced)LEGAL SECURITYThe district's general obligation debt is backed by a full faith and credit pledge and the authority to levy a dedicated property tax unlimited as to rate and amount is the pledge for general obligation bond repayment. In addition, the debt is also supported by the State of Minnesota's School District Credit Enhancement Program which provides for an unlimited advance from the state's general fund should the district be unable to meet debt service requirements.USE OF PROCEEDSThe Series 2022A bonds will fund extensive renovation to the district's elementary school building, after which future capital needs will be very limited.PROFILELake Park-Audubon ISD 2889 is located primarily in Becker County in west central Minnesota, approximately 35 miles east of the Fargo-Moorhead metro area. The district has an enrollment of over 700 students and is comprised of the City of Lake Park, the City of Audubon and surrounding areas.METHODOLOGYThe principal methodology used in the issuer and underlying ratings 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. 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