S&P: Alum Rock Union Elementary School District, CA Various Debt Ratings Affirmed, Removed From CreditWatch; Outlook Negative

S&P Global Ratings affirmed its 'BBB+' long-term rating and underlying rating (SPUR) on Alum Rock Union Elementary School District (ESD), Calif.'s outstanding general obligation bonds. S&P Global Ratings also affirmed its 'BBB' long-term rating and SPUR on the district's certificates of participation (COPs). At the same time, S&P Global Ratings removed the ratings from CreditWatch with negative implications, where they had been placed on July 7, 2017. The outlook on all ratings is negative.

The July 2017 CreditWatch placement reflected the California Fiscal Crisis & Management Assistance Team's "extraordinary audit" on the district, which concluded that there was sufficient evidence that fraud, misappropriation of funds, or other illegal activities may have occurred, prompting intervention by the Santa Clara County Office of Education (SCCOE).

"The rating affirmations reflect our view that the county's escalating oversight of the district, which now includes appointment of a fiscal expert and the potential appointment of a fiscal advisor that will have veto authority over board decision-making, has eased our concerns regarding the possibility for additional, unexpected fiscal pressures that might arise as a result of the district's multiple governance and control problems," said S&P Global Ratings credit analyst Benjamin Geare.

"However, the negative outlook reflects our view of persistent risks stemming from the district's ongoing difficulties reconciling its cash position in a timely manner, recent history of inadequate internal controls, and the potential for further liabilities that could surface as a result of the multiple investigations into the district," continued Mr. Geare. "To a lesser extent, that negative outlook also reflects our view of the district's difficulties providing timely and satisfactory responses to the SCCOE."

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