Fitch Rates Los Angeles USD, California's $400MM GOs 'A+'; Upgrades COPs to 'A'.

SAN FRANCISCO -- Fitch assigns an 'A+' rating to the Los Angeles Unified School District, California's (the district) $400 million general obligation bonds (GOs) election of 2004, series G (2006). The bonds will be sold through negotiation on or about Aug. 2, 2006 by a syndicate led by UBS Investment Bank. The Rating Outlook is Stable. Tamalpais Advisors, Inc. and Kelling Northcross and Nobriga serve as co-financial advisors. Also, Fitch affirms the 'A+' rating on $5.65 billion in outstanding GOs. The Rating Outlook is Stable.

Additionally, Fitch upgrades the district's $401.1 million in outstanding certificates of participation (COPs) to 'A' from 'A-'. The Rating Outlook is Stable. A full list of the upgraded COPs follows at the bottom of this press release.

The ratings reflect the district's progress toward restoring long-term financial balance as well as its ongoing budgetary pressures. Audited results for fiscal 2005 show a small operating surplus and preserve a satisfactory 5% year-end reserve. Similar results are anticipated for fiscal 2006, and the fiscal 2007 budget is balanced while retaining the good reserve level. Despite the recent financial stability, Fitch expects continued budgetary pressures, resulting from declining enrollment, labor demands in current negotiations, and sizable facility needs. Debt levels remain affordable but will rise as the district continues on its massive, voter-supported construction program. Fitch notes the district's adoption of sound debt and financial policies as helpful in retaining and improving credit quality.

Fiscal 2006 marks the district's third consecutive year of enrollment declines, and losses are projected through at least fiscal 2008. The declines result from slower population growth in the area (partially resulting from higher housing costs pushing young families out of the area) and competition, especially from charter schools where enrollment has risen substantially. While near-term financial pressures from the decline are eased by a one-year 'hold harmless' provision in the state funding formula, student loss results in funding declines that aren't matched dollar-for-dollar by savings.

The fiscal 2007 provisional budget is balanced, although current negotiations with the district's bargaining groups could require adjustments. This year's financial planning is aided by higher state revenue and the ongoing savings from the district's debt restructuring and reduction done over the last few years.

The district continues to benefit from a broad and diverse economic base, with healthy assessed value gains and moderate job growth. The district operates the nation's second largest school system and serves a broad range of educational and community needs including adult education, jobs skills training, and day care/preschool education.

Fitch's ratings consider possible governance and management changes in the district. A bill pending in the California legislature would, if enacted, increase the district superintendent's authority and grant certain authority to a newly established Council of Mayors, consisting of the mayors of the 27 cities encompassed by the district. The council would be dominated by the Mayor of Los Angeles because the city makes up about 80% of the district. Fitch views the credit implications of this or any possible governance change as unknown, since too few details of the plan, and the likelihood of its implementation, can be accurately determined at this time.

Fitch's upgrade of the rating on district's lease-secured obligations brings these ratings more in line with Fitch's general approach to lease financings, making a one-step distinction between such ratings and the obligor's general obligation rating. The upgrade also acknowledges the district's considerable need for bond market access and restored financial stability.

Certificates of Participation upgraded to 'A' from 'A-' are:

-- Series 1997A (Belmont Learning Center)

-- Series 2000B (Multiple Properties Projects)

-- Series 2001B (Administrative Building Project)

-- Refunding Series 2002A (Dr. Francisco Bravo Medical Magnet Senior High School Project)

-- Series 2002B (Multiple Properties Projects)

-- Series 2002C (Administrative Building Project II)

-- Series 2003A (Multiple Properties Projects)

-- Series 2004A (Refinancing and Multiple Properties Projects)

-- Series 2004B (Refinancing and Multiple Properties Projects)

-- Refunding Series 2005A (Administration Building Project)

-- Refunding Series 2005B (Administration Building Project III)

-- Refunding Series 2005C (Multiple Properties Projects)

The Rating Outlook is Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.