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Rating Action: Moody's affirms Lucia Mar USD, CA's GO at Aa2Global Credit Research - 08 Mar 2021Assigns A1 to Refunding COPsNew York, March 08, 2021 -- Moody's Investors Service has affirmed Lucia Mar Unified School District, CA's issuer rating at Aa3. The issuer rating reflects the district's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. Moody's has also affirmed the district's outstanding Aa2 general obligation unlimited tax (GOULT) rating and affirmed the A1 rating on the district's outstanding certificates of participation (COP). Concurrently, Moody's has assigned an A1 rating to the district's $10.2 million 2021 Refunding Certificates of Participation. This rating action affects approximately $121.7 million in outstanding debt and approximately $1.5 million of outstanding certificates of participation at A1.RATINGS RATIONALEThe Aa3 issuer rating incorporates the district's healthy local economy, reflected in residents' above average wealth and incomes and the expectation that the tax base is well positioned for future growth. District enrollment and average daily attendance is declining, largely consistent with trends seen across the State of California (Aa2 stable). Although the district's reserves have narrowed in recent years, its financial position remains sufficient for the rating level. The district's leverage, including debt, pension and other post employment benefits (OPEB) obligations, is somewhat elevated but will remain manageable given an average fixed cost burden.The Aa2 rating on the school district's GOULT bonds is one notch higher than the district's issuer rating. The one-notch distinction reflects California school district general obligation (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 A1 rating on the district's COPs is one notch below the issuer rating, reflecting abatement risk and the more essential leased asset of a school building. The district covenants to include COP payments in annual budgets, and payments are not subject to appropriation. All of the district's actively managed general revenue is available for lease payments. The COPs are also secured by a reserve fund equal to the least of: (a) 10% of par; (b) maximum annual debt service; or (c)125% of average annual principal and interest payments.RATING OUTLOOKOutlooks are not typically assigned to school districts with this amount of debt outstanding.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Substantial and sustained improvement to reserves and liquidity- Significant reduction in long term liabilities- Material improvement in district wealth and income levelsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Substantial weakening of financial position, including reserves and liquidity- Material growth to long-term liabilities- Prolonged long-term enrollment declinesLEGAL SECURITYThe GO bonds are secured by the levy of ad valorem taxes, unlimited as to rate or amount, upon all taxable property within the district. The portion of the levy restricted for debt service is collected, held, and transferred directly to the paying agent by San Luis Obispo County on behalf of the district.The district's COPs are secured by a pledge of all of the district's actively managed general revenue. The COPs are also secured by a reserve fund equal to the least of: (a) 10% of par; (b) maximum annual debt service; or (c)125% of average annual principal and interest payments.USE OF PROCEEDSProceeds of the certificates will be used to refund the district's outstanding 2013 energy lease financing.PROFILELucia Mar Unified School District is located in San Luis Obispo County, 20 miles from the City of San Luis Obispo and 75 miles north of Santa Barbara. The district covers 550 square miles and serves students in the communities of Arroyo Grande, Grover Beach, Nipomo, Oceano, Pismo Beach and Shell Beach. The district is a pre-K through 12th grade district that operates 11 elementary schools, three middle and four high schools with an average daily attendance of 9,805 in 2020.METHODOLOGYThe principal methodology used in these 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. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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. 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