IRVINE : Crisis Sends School Bonds Plunging to Lowest Rating

Irvine Unified School District bonds have fallen from the top of Standard and Poor’s rankings to the bottom, a reflection of investor concerns over the county’s financial crisis.

The fall will make future borrowing by the district more costly.

However, Deputy Supt. Paul Reed says the rating issued last week is based on the district’s answer to a single “crucial and somewhat spurious” question.

“They asked us, ‘If you get no more money from the Orange County investment pool, can you pay off your bonds on schedule?’ ” Reed said. “My answer is no, but it’s incredibly misleading to assume we would get no more money from the county.”

Irvine Unified has about $105 million frozen in the county investment pool, more than any other Orange County school district. Reed said the district will not accept any loss of principal because public school districts are required by law to keep funds on deposit with the county.

“All school district money was held in trust by the county,” Reed said. “They owe us 100 cents on the dollar.”

School district officials anticipate no immediate impact from the downgraded bond rating on $70 million worth of tax anticipation notes issued by the district. Most of the bonds were purchased by institutional investors, who Reed says will not be hurt by the lower rating if the bonds are held to maturity.

The biggest challenge ahead for the school district is the repayment of a $54.5-million tax anticipation revenue note due by June 15. “If we can pay everybody off in June, I don’t think (the lower bond rating) will change anything,” said Howard Adler, school board member and accountant. “Hopefully, we will pay everybody back.”