Fitch: California Ruling Is Negative for Few School Districts

NEW YORK--(BUSINESS WIRE)-- A recent ruling on lease-leaseback construction financings could slow construction procurement for some school district but will not have an impact on ratings for California schools, Fitch Ratings says.

The Fifth Appellate District's ruling on Davis v. Fresno Unified School District (Fresno USD) questions the use of the structure as a means of avoiding competitive bidding but continues to allow lease-leaseback arrangements for legitimate financing purposes. The ruling addresses a narrow category of school construction leases that are distinct from the lease revenue bonds and certificates of participation commonly utilized by California schools and other municipal borrowers.

Under leases addressed by the Fresno USD ruling, a school district leases land it owns to a construction firm at no cost, and the property is leased back to the district in return for ongoing payments that fund the cost of new construction. In the case of lease revenue bonds and certificates of participation, leases are typically executed between a municipality and a special purpose entity controlled by the municipality to provide a legal basis for the payment of debt service without voter approval. The California Supreme Court reviewed these latter local government lease financings in the landmark Rider v. City of San Diego case in 1998, confirming their validity for municipal borrowing. The appellate court's ruling does not address these traditional financings.

Davis v. Fresno USD will create a management challenge for districts that have entered into lease-leaseback contracts without a legitimate financing purpose, but most school districts will be unaffected, as will holders of any bonds sold to finance traditional long-term leasing activities. The appellate ruling will continue to permit California schools to engage in lease-leaseback financings for construction but emphasizes the requirement that it be in connection with a long-term financing.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150923006306/en/

Fitch Ratings
Stephen Walsh, +1 415-732-7573
Director
U.S. Public Finance
650 California Street
San Francisco, CA
or
Rob Rowan, +1 212-908-9159
Senior Director
Fitch Wire
33 Whitehall Street
New York, NY
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
[email protected]

Source: Fitch Ratings

You May Also Be Interested In

• Pudu Robotics Showcases Full Product Portfolio at WAIC 2026, Winning the "Most Investor-Attractive Enterprise" Award
• Best AI Productivity Tools for Creators (2026): CapCut Recognized for Faster Video and Image Workflows by Software Experts
• XRP Price Prediction: Whales Accumulate XRP as AlphaPepe’s 10,000 Buyers Join In Before Its First Exchange Chart