OREANDA-NEWS. All 18 California school district unlimited tax general obligation (ULTGO) bonds rated to date using an analysis of pledged special revenues have received ratings higher than the Issuer Default Rating (IDR) - some notably so - due to their especially strong legal framework, according to a new Fitch Ratings report.

"The dedicated tax bond ratings are higher than the IDR due to the demonstrated strength and resilience of the tax bases from which the pledged revenues are derived, and modest to moderate long-term liability burdens," said Karen Ribble, Senior Director.

"Fitch believes the case for pledged special revenue status must be very clear because a distressed municipality will seek to exploit any reasonable doubt about special revenue status in a bankruptcy proceeding."

Fitch believes that the legal structure of California school district bonds minimizes the possibility of a legal challenge to the bonds' pledged special revenue status under 902(2)(E). Their ratings are based on an analysis of the strength of the tax base, the unlimited tax pledge and overall tax rates and debt burdens, but do not incorporate the districts' operating risk.

Fitch does not consider a fair or plausible argument to be a sufficient basis to deter challenges. The more complex the proceedings and the higher the stakes for other claimants including public employee pension funds, the more likely it is that the status as special revenue bonds would be disputed.

Fitch will give credit to pledged special revenue status only if the overall legal framework renders remote a successful challenge to the status of the debt as secured by special revenues.