San Ysidro school bonds placed on watch

San Ysidro school bonds placed on watch
The issue is a lawsuit that wasn't disclosed to potential investors
Jeff McDonald
May 25, 2012

A New York bond-rating agency on Friday warned that it may lower its A and A-plus grades for $132 million worth of bond offerings from the San Ysidro School District, saying analysts were not told about a breach-of-contract lawsuit against the South Bay district.

The district’s bond counsel says there was no need to disclose the lawsuit to potential investors because property taxes are a stable revenue source.

Still, Fitch Ratings acted in response to questions from The Watchdog, which sought an explanation for why the litigation was not disclosed in a favorable analysis released last week.

“The negative rating watch is based on Fitch learning of a complaint of breach of contract filed against the district, which was not disclosed to Fitch in conjunction with last week’s rating action,” the company said. “Fitch has requested additional information from the district.”

It is not clear how the action will affect the district’s construction plans. Board President Paul Randolph referred questions to Superintendent Manuel Paul, who did not respond to multiple calls and emails starting Thursday morning.

Daniel Shinoff, the district’s lawyer, issued a brief statement Friday saying his clients will comply with Fitch’s request for more information.

“The district has always taken the required measures to ensure full disclosure to ratings agencies, and the district does not believe they have legitimate financial risks to the bond offering out of this lawsuit,” Shinoff said.

The rating agency resisted discussing details about why it placed the bond offerings on a negative-watch status, saying a review of its initial analysis was pending.

“Fitch will take rating action when appropriate, which may result in an affirmation, downgrade or withdrawal,” a statement said.

On May 17, Fitch issued an A-plus rating for up to $101.5 million in general obligation bonds and an A rating for $31.5 million in certificates of participation.

The district was sued last month for nearly $18 million by EcoBusiness Alliance, a company that was retained to install solar energy projects at various San Ysidro campuses.

According to that six-page complaint filed April 5, district officials reneged on the $17.9 million agreement late last year without explaining why. The district contends the company did not perform.

EcoBusiness Alliance filed a claim against the San Ysidro School District in February and followed up with the lawsuit last month.

“Plaintiffs have neither abandoned nor neglected their obligations and responsibilities under terms of the contract and at all times have been ready, willing and able to perform,” the suit states.

According to attorney Warren Diven of the law firm Best Best & Krieger, which served as bond counsel for the district, disclosure of the lawsuit was not required...