New Issue: Moody's assigns Aa3 rating to Brevard County School Board's (FL) $82.2 million COPs, Series 2013 A&B

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1 New Issue: Moody's assigns Aa3 rating to Brevard County School Board's (FL) $82.2 million COPs, Series 2013 A&B Global Credit Research - 27 Mar 2013 Affirms School District's Aa2 Issuer rating BREVARD COUNTY SCHOOL DISTRICT, FL Public K-12 School Districts FL Moody's Rating ISSUE RATING Taxable Refunding Certificates of Participation, Series 2013B Aa3 Sale Amount $39,280,000 Expected Sale Date 04/08/13 Rating Description Lease Rental: Appropriation Refunding Certificates of Participation, Series 2013A Sale Amount $42,955,000 Expected Sale Date 04/08/13 Rating Description Lease Rental: Appropriation Aa3 Moody's Outlook NOO Opinion NEW YORK, March 27, Moody's Investors Service has assigned an Aa3 underlying rating to Brevard County School Board's (FL) $82.2 million Certificates of Participation (COPs), Series 2013A ($43 million) and Series 2013B ($39.3 million). At this time, Moody's also affirms the Aa3 underlying rating on the board's $507.7 million outstanding rated parity debt. Certificates are secured by annually-appropriated lease payments from the School Board (lessee) to the School Board Leasing Corporation (lessor), and effectively serviced from the district's capital outlay millage. Certificate proceeds, along with other funds, will refund $81.8 million of various COPs ($5.1 million, Series 2002; $40.8 million Series 2004A; and, $35.9 million Series 2004B) to achieve an estimated $4.32 million (5.28% of refunded par) net present value savings, taken primarily upfront (first three years) but within original amortization schedules. No additional COPS are anticipated in the district's current capital program, as there is virtually no available capacity to issue COPs. SUMMARY RATING RATIONALE The Aa3 COP rating reflects the overall essential nature of the pledged assets, favorable legal protections pursuant to the Master Lease that enhance the incentive to appropriate, and an effective separate repayment source for the certificates, which is very highly leveraged. The COP and Issuer Rating also reflect: the still sizable, but declining, property tax base; good financial position with moderate reserves and cash; and modest debt burden. STRENGTHS - Ability to adjust budgets to maintain or enhance financial strength - Strength of the master lease with effective separate repayment source

2 CHALLENGES - Very highly-leveraged capital millage - Declining capital funds, and inability to secure voter-approval for capital sales tax - Struggling economic base DETAILED CREDIT DISCUSSION ESSENTIAL NATURE OF PROJECTS AND GOOD SECURITY FEATURES MITIGATES APPROPRIATION RISK; HIGHLY LEVERAGED NATURE OF CAPITAL MILLAGE ADDS PRESSURE Moody's believes the strength of the master lease program, the essential nature of the projects, and the ability to utilize a separate funding source for COP payments, albeit highly leveraged, provides strong appropriation incentive. Under terms of the Master Lease, the school board must budget and appropriate for all or none of the projects, a key legal provision considered in the Aa3 rating. Nearly half of the district's schools are on the master lease (in whole or in part), and about 75% of the projects in the master lease are asset-backed. Under the Lease Purchase Agreement, the Superintendent shall include the funds necessary to make lease payments in the proposed budget, unless prior to fiscal year-end the school board gives notice of its intent not to appropriate for payments due in the following year. Given the essential nature of the financed projects, and the fact that COPs have been utilized as the district's primary financing vehicle, Moody's believes that the risk of non-appropriation is minimal. Lease payments are expected to be paid from proceeds of the district's discretionary 1.5 mill capital outlay levy. Prior to fiscal 2013, a state law allowed school districts to use up to 75% of their capital outlay levy (or mills) for lease payments. The law was subsequently amended to exclude from the calculation, lease obligations entered into prior to June 30, Maximum COP debt service of $38.7 million, is in relation to the $39.5 million generated by 1.5 mills from fiscal 2013 taxable values at a 96% collection rate. Also, given revenue anticipation notes (RANS) of $8.3 million outstanding (due in April 2013), which are directly secured by the capital outlay levy, the capital millage is fully leveraged. Lease payments are made five days prior to debt service payment dates on the certificates. There is no limit as to the number of projects in the master lease, and substitution of facilities with equal or greater value and remaining useful life is allowed. The Corporation has assigned its rights, title and interest in the lease to the Trustee, including the right to receive basic lease payments. The Board reportedly owns the land and will undergo a title search and obtain a title opinion. A STRUGGLING ECONOMY WITH SOME MODEST SIGNS OF STABILIZING; PROTRACTED RECOVERY ANTICIPATED The district is coterminous with Brevard County, in east-central Florida, which has been one of the principal locations of the nation's space program. The economy has traditionally been driven by the nation's shuttle program, which ended in 2011, and a number of high tech manufacturing employers, some of the larger ones dependent on government as well as commercial projects. The loss of jobs associated with both NASA and manufacturing seems to have stabilized with Space X now operating at Kennedy Space Center and manufacturing entities either already downsized or obtaining new contracts (e.g., Northrup Grumman). This is evidenced in the slight recovery in the county's workforce, stabilized enrollment figures, and declining unemployment rates to 8.3% in December 2012, down from the high of 12.8% in January The county had fared much worse in the 1970's with the discontinuance of the Apollo Program, and related loss of about 25,000 jobs. Tourism and related services, aided by the county's active cruise industry and recreational attractions, also provide some needed stability. County population increased 46% during the 1980s, 19.4% in the 1990's and an estimated 14% between 2000 and 2010, to 542,687. The district's tax base, which had more than doubled between fiscal 2003 to the fiscal 2008 high of $41 billion, has since declined 33% to $27.5 billion in fiscal State officials have projected growth of nearly 3% in fiscal 2014, although district officials budget at no-growth. After four years of decline, the percentage change in existing single family home sales increased from 2009 to 2011, although home prices have continued to drop. Declines in taxable values have resulted in a moderate $78,439 full value per capita in fiscal Wealth levels are above those for the state, and per capita income ( ) approximated that of the U.S. while median household income ( ) was 95% of the U.S.. According to Moody's Economy.com (Nov. 2012), the recovery of the Palm Bay-Melbourne- Titusville economy will continue at a modest pace over the coming months before strengthening in the latter half of Healthcare will be an important driver, and leisure/hospitality will get a lift from part-time residents from the North. Holding back stronger growth will be consumer deleveraging and the slow recovery of the housing market. Employment will not reach its prerecession level until 2017, more than two

3 years after the nation. Longer term, the area should slightly outperform the U.S. as the warm, coastal location draws in-migrants, lifting population growth well above the national average. However, growth will fall short of the fast pace experienced during the first half of the 2000s. ENROLLMENT STABILIZING; CAPITAL FUNDING NEEDS CHALLENGED BY TIGHT AVAILABLE REVENUES The district has 92 schools (including 7 charter schools) and 70,386 FTE students in fiscal District enrollment has declined 3.3% since 2008, and state projections are for a marginal increase and stability going forward. The district has continually modified its capital program in light of declines in state and local capital funds. With the loss of state public education capital outlay funds (PECO) in the past few years, utilization of the entire 1.5 mill local property tax levy to pay debt service, the decline in available capital balances (to $23 million), and failure to obtain voter-approval for a new one-half cent sales tax for capital, officials are only able to fund less than one-third of their estimated annual $28 million renewal needs. The district is dedicating more operating funds (through transfers) to provide for the district's more critical needs. The protracted unavailability of capital funding, and any related impact from increased operating transfers on district reserves and liquidity, would create negative rating pressure. The district's 1.9% overall debt burden is modest. The district supports a sizable $512.3 million COP program, and anticipates no additional COP issuance, especially as they retain no capacity for further issuance. COP payout is below average with 35% of COPs repaid within 10 years, and 100% in 24 years. Debt service costs, at 6.9% of governmental expenditures, are modest. Officials have met class size reduction mandates in all years with the exception of one charter school in fiscal Achieving the class-by-class mandated levels in October 2013 will reportedly be a challenge. The district has no exposure to auction rate securities, variable rate debt or swaps. Voters defeated a one-half cent sales tax referendum in November 2012, that would have provided needed capital relief. SATISFACTORY FINANCIAL OPERATIONS; FAVORABLE MANAGEMENT RESPONSE TO BUDGETARY IMBALANCES Moody's believes district officials have taken appropriate steps to date to address anticipated budgetary imbalances and maintain adequate reserves, although going forward, finances will be challenged by uncertainties related to state funding levels, additional operating transfers for capital, and negotiated salary adjustments. The district has performed well despite the loss of $79.3 million in General Fund revenues between fiscal 2008 and 2013 related to state cuts and a weakened economy, primarily as a result of timely budget adjustments and extension of the.25 mills critical millage. At the end of fiscal 2012, the district had a $59.9 million total fund balance equal to 16.4% of General Fund revenues, and a $51.4 million unassigned balance (which included a $19.88 million contingency reserve) equal to 11% of revenues. In addition, cash position was solid with cash and investments representing 19.3% of revenues. For fiscal 2013, officials anticipate a fund balance reduction of about $18 million (to $41.9 million), due to declines in state and local revenues as well as a one-time employee bonus ($10 million). In preparation of the fiscal 2014 budget, official have identified a potential $30.7 million gap caused by increased transfers from the General Fund to the Capital Fund ($6 million), loss of the.25 critical millage ($8.9 million), increases in compensation and benefit costs ($5.7 million), enrollment loses to charter schools ($3.8 million), increased pension contribution ($3 million), and a 1.5% negotiated union wage increase ($3.3 million). Officials have already identified up to $39.5 million in potential cuts to address this potential imbalance. Currently, the $19.88 million contingency fund is expected to remain untouched. The contingency reserve policy is set at a minimum of 3%, although it has more recently been maintained at higher levels (4.2% in fiscal 2012). The district belongs to the state-administered pension plan and pays its required 100% annual contribution. Contributions have remained stable and have not pressured district operations. The state plan's liability is highly funded at about 87%. The district has an actuarially-determined unfunded OPEB (GASB 45) liability of $102.6 million with annual cost in fiscal 2012 of $9.74 million in relation to $2.43 million contributed. For fiscal year 2012, health care, pension, OPEB and debt service costs were 22.3% of governmental expenditures. The district maintains $100 million in property insurance coverage in fiscal 2013, based on availability and cost, and has obtained a waiver under the master lease requirements. WHAT COULD MAKE THE RATING GO UP: - Significantly increased capital revenues - Improved financial reserves WHAT COULD MAKE THE RATING GO DOWN:

4 - Continued deterioration of capital funds - Continued and material decline in cash and fund balances - Continued and protracted economic malaise KEY STATISTICS Lessor: Brevard School Board Leasing Corp. Lessee: Brevard County School Board Value of 1.5 Mills: $39.5 million (2013 tax roll at 96% collection rate) Maximum Debt Service (all COPs): $38.7 million Post Sale Certificates Outstanding: $512.4 million (including QZAB) Certificate Payout, 10 years: 35% 20 years: 89.1% 24 years: 100.0% 2013 Enrollment (FTE): 70, Population (estimate): 542, Full Valuation: $43 billion Full Value Per Capita: $78,439 County Unemployment Rate, 12/2012: 8.3% (vs. 7.9% for state, and 7.6% for U.S.) Debt Burden: 1.9% FY 2012 Total General Fund Balance: $59.9 million (16.4% of General Fund revenues) FY 2012 General Fund Contingent Reserve: $19.88 million (4.2% of General Fund revenues) County Median household Income as % U.S. ( ): 95% County Per Capita Income as % (.S. ( ): 100% The principal methodology used in rating the certificates of participation was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in December The principal methodology used in rating the issuer rating was General Obligation Bonds Issued by U.S. Local Governments published in October Please see the Credit Policy page on for a copy of this methodology. REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on

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