ciency in the state sinking fund because of a school
district or governmental unit’s failure to meet its
debt service obligations. The rating for West
Virginia’s program reflects the state’s strong debt
service oversight and the legislature’s replenishment
provision for the bond commission’s sinking fund.
Wyoming School District Bond
Guarantee Program (‘AAA’)
Governing statutes: Local school district bonds are
eligible to be guaranteed by the Wyoming School
District Bond Guarantee Program under Chapter 13
of the state’s Farm Loan Board rules and regulations
and Wyoming state statutes 9-4-701(j). This rating
will move in conjunction with that of the state.
Eligibility requirements: School districts applying
for qualification under the program must first pro-
vide the Office of State Lands and Investments a
letter from a nationally recognized rating agency
indicating that the bonds would be of at least
investment-grade quality. Applications for bond
issues over $5 million must be accompanied by the
precise underlying rating before the guarantee can
be granted.
Program provisions: No more than $300 million
in school bonds may be guaranteed by the pledged
guarantee fund, a very strong 3:1 leverage ratio.
Bonds guaranteed under this program are backed by
$100 million from the state’s Common School
Account. The $100 million guarantee fund is a fun-
gible subset of the Common School Account. The
Common School Account is a state trust fund
derived from mineral royalties on lands dedicated
for school income and is, in turn, a non-fungible
subset of the state Permanent Land Fund. While
only $100 million is pledged from the Common
School Account, and amounts over $100 million in
the Common School Account could be dedicated in
the future to other school programs, current imple-
mentation rules charge investment losses first
against the non-obligated part of the Common
School Account. This provides an even greater guar-
antee cushion, as the pledged fund would garner the
last non-obligated $100 million in the fund in the
event of investment losses.
The Common School Account can be used only
for school purposes and currently contributes
investment income for yearly distributions to
schools. The state treasurer’s investment policy sets
guidelines intended to maximize yield within the
constraints of maintaining book value. Outside
money managers can be hired to manage a portion
of investments. Outside managers’ transactions are
reported monthly and performance is judged quar-
terly. Each outside manager is expected to maintain
an average portfolio credit quality of at least ‘AA’.
Up to 5% of a portfolio may be invested in unrated
securities, provided that these securities are judged
by the Board to be at least of investment-grade
quality. No more than 5% of the portfolio may be
invested in obligations of any single issuer other
than the U.S. government. Investment allocations
may change over time, but have historically been
conservative. In addition, the guarantee program
rules require that an amount at least equal to 10%
of guaranteed bond principal be invested in U.S.
government securities of three years’ maturity or
less to ensure liquidity. Debt service payments are
not accelerated in the case of an underlying school
district’s default, preserving the liquidity of the
guarantee fund.
Program rules provide adequate time for guarantee
funds to cover debt service payments when due, if
needed. An independent paying agent is required to
notify the State Treasurer not less than five days
before a debt service payment date if it becomes
aware of a potential default on a guaranteed debt
obligation. Program rules also require a school dis-
trict to notify the state treasurer on its own 15 days
before a due date, if it projects that it will not be able
to pay debt service. If there is a debt service shortfall,
the treasurer must pay the paying agent an amount to
cover the shortfall at least one day before the debt
service due date. The state requires a defaulting
school district to repay the Common School Account
for any draw, including lost interest on the fund.■Appropriation-Backed Obligations ..................................................................................
http://www.standardandpoors.com 103A
ppropriation-backed obligations come in vari-
ous forms; the most prevalent are lease revenue
bonds, certificates of participation, and service con-
tract bonds. Municipal appropriation-backed obli-
gations frequently are used to avoid constitutional
or other legal restrictions on the use of GO debt.
Appropriation-backed obligations may also be the
most expedient and flexible financing method for
many governments. For these obligations, timely
payment of principal and interest depends on annual