U.S. PUBLIC FINANCE

CREDIT OPINION8 December 2016

New Issue

Contacts

Tatiana Killen 312-706-9972Analysttatiana.killen@moodys.com

Adebola Kushimo 214-979-6847VP-Senior Analystadebola.kushimo@moodys.com

Oconomowoc Area School District, WINew Issue: Moody’s Assigns Aa2 to Oconomowoc AreaSchool District, WI’s GOULT

Summary Rating RationaleMoody’s Investors Service has assigned a Aa2 rating to Oconomowoc Area School District,WI’s $9 million General Obligation School Improvement Bonds, Series 2016. Concurrently,Moody’s maintains the Aa2 rating on the district’s outstanding general obligation unlimitedtax (GOULT) debt. Post-sale, the district will have $58.6 million of GOULT debt outstanding.

The Aa2 rating reflects the district’s sizeable tax base located in southeastern Wisconsin (Aa2positive) within commuting distance to the City of Milwaukee (Aa3 stable); above averageresident wealth indices; solid financial operations supported by improved reserve levels; andmanageable debt and pension liabilities.

Credit Strengths

» Sizeable tax base realizing growth in valuation

» Above average resident income levels

» Expected maintenance of a solid financial position given stability of enrollment andconsecutive operating surpluses

Credit Challenges

» Recently approved borrowing authority to result in an increase in debt burden

» Improved but relatively narrow net cash balance

Rating OutlookOutlooks are usually not assigned to local government credits with this amount of debtoutstanding.

Factors that Could Lead to an Upgrade

» Sustained, steady growth in financial reserves and/or liquidity

» Continued economic development leading to assessed valuation growth

Factors that Could Lead to a Downgrade

» Significant declines in the district's tax base and/or wealth indices

» Weakening of the district's financial position

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This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 8 December 2016 Oconomowoc Area School District, WI: New Issue: Moody’s Assigns Aa2 to Oconomowoc Area School District, WI’s GOULT

» Material increases in the district's debt burden, absent assessed valuation growth.

Key Indicators

Exhibit 1

Oconomowoc Area School District, WI

Source: Oconomowoc School District's Audited Financial Statements, Moody's Investors Service, BLS Census data

Recent DevelopmentsIn November 2016, the district received voter approval to issue up to $54.9 million in debt to renovate, construct, and improve variousdistrict facilities.

Detailed Rating ConsiderationsEconomy and Tax Base: Sizeable, Affluent Tax Base Located In South Eastern WisconsinThe district's tax base will likely continue to exhibit modest long term growth given residential and commercial developmentthroughout the region as well as access to employment centers within Waukesha County (Aaa Stable) and surrounding metro areas.Located approximately 30 miles west of Milwaukee along I-94, the district covers three counties and serves an area of 135 square milessurrounding the City of Oconomowoc (Aa2). The district's tax base is currently valued at $5.2 billion (fiscal 2016). After five years ofconsecutive declines, the district's tax base grew by 8.1% over the past three years, resulting in an improved average annual increase of0.2% over the past five years through fiscal 2016. The district's full value per capita remains strong at $153,926. Median family incomein the district is estimated at 140.4% of the nation.

The district is largely a bedroom community with most residents commuting to Milwaukee and Waukesha area employment centersfor work. After experiencing double digit population growth over the last decade, the district's population has stabilized with anestimated population of 33,489. The district's tax base is diverse, with the top ten taxpayers comprising just 3.8% of total 2015 fullvalue. A diverse local employment base includes Target (A2 stable) distribution center, the district's largest employer accounting forover 600 employees. The district's multi-county September 2016 unemployment rate of 3.2% was below the state's, and the nation's.

Enrollment has increased steadily, increasing an average 1.1% annually over the last five years to 5,366 students in fiscal 2017.Enrollment is a key determinant in state per pupil funding, and the district projects enrollment growth will continue to remain stable,with projected enrollment essentially unchanged by fiscal year 2022 to 5,365 students. The district uses more conservative enrollmentestimates for budgeting purposes and capacity issues. Management notes that the recent voter approved bonding authority (whichincludes the current issuance) will began to address the findings of the facility study that outlined, among other concerns, the district'scapacity issues, particularly in the elementary schools.

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3 8 December 2016 Oconomowoc Area School District, WI: New Issue: Moody’s Assigns Aa2 to Oconomowoc Area School District, WI’s GOULT

Financial Operations and Reserves: Solid Financial Operations Characterized By Improved Reserve LevelsThe district's financial position will likely remain solid due to its improved stable reserve position and prudent budget management.District reserve levels have improved substantially from fiscal 2010 General Fund balance of $5.5 million or a satisfactory 11% ofGeneral Fund revenues to $14 million or a solid 23.5% of General Fund revenues at the close of fiscal 2015. The district achieved aGeneral Fund operating surplus of $1.7 million in fiscal 2015 which was attributed to savings in operational costs across departmentsas well as an increase in state aid revenues from enrollment gains. Fiscal 2015 reserves are within the district's policy of maintainingbetween 15% and 25% of annual operating expenditures in General Fund reserves. For fiscal 2016, the district budgeted conservativelyfor balanced operations but unaudited figures indicate a General Fund operating surplus of $1.9 million given savings in personnelcosts, weather related expenses (utilities and purchased services), and fuel cost. For fiscal 2017, the district budgeted for balancedoperations with year to date figures tracking closely to budget.

Property taxes are the district's largest source of operating revenues (which consist of the General Fund and Debt Service Fund) andcomprised 75.3% of operating revenues in fiscal 2015. State aid is the second largest operating revenue source accounting for 19.8% offiscal 2015 operating revenues.

LIQUIDITY

The district annually borrows for cash flow purposes due to the timing of property tax receipts. Oconomowoc has been able to reducethe amount of cash flow borrowed over the last several years due to its growing fund balance. In fiscal 2015, the district issued $7.5million in Tax and Revenue Anticipation Notes, down from $12 million in prior years. For fiscal 2016, the district intends to borrow asimilar amount. Typically cash flow notes are outstanding at the end of the fiscal year, which impacts the district's net cash position.Factoring in the outstanding $2.5 million short term note, the district's net cash position at the end of fiscal 2015 totaled $4.5 millionor a satisfactory 8.4% of operating fund revenues.

Debt and Pensions: Average Debt Burden Expected to Substantially IncreaseThe district’s long-term liability profile is moderate, based on an average debt profile that is expected to increase but remainmanageable and moderate unfunded pension liabilities. The district’s direct and overall debt burden are average at 1.1% and 1.9% offull valuation, respectively. Debt service is moderate, comprising 12.4% of 2015 operating expenditures. Fiscal 2015 total fixed costs,which includes debt service, other post employment and annual pension contributions, totaled $12.6 million, or a moderate 19.5% of2015 operating revenues.

The current issuance represents the first installment of $54.9 million of debt approved by voters in November 2016 to finance variousimprovements and renovations throughout the district. The district anticipates issuing the remaining approximately $45.9 million overthe next three to four years with the next portion of $25.9 million planned for fiscal 2017.

DEBT STRUCTURE

All of the district's debt is fixed rate and amortized over the long term. Amortization of existing debt is average with 76.5% of principalset to be retired in ten years.

DEBT-RELATED DERIVATIVES

The district is not a party to any interest rate swap or derivative agreements

PENSIONS AND OPEB

The district has moderate pension liabilities based on its participation in the state multi-employer pension plan, the WisconsinRetirement System (WRS). The district's contribution to WRS in fiscal 2015 totaled $3 million, or 4.6% of its 2015 operating revenues.The district has historically made its required contributions to WRS. Moody's adjusted net pension liability (ANPL) three year average(2013-2015) for the district, under our methodology for adjusting reported pension data, was $47.8 million, or a modest 0.74 timesoperating revenues and 0.96% of full value. Moody's ANPL reflects certain adjustments we make to improve comparability ofreported pension liabilities. The adjustments are not intended replace the district's reported contribution information, but to improvecomparability with other rated entities. We determined the district's share of liability for WRS in proportion to its contributions to theplan and covered payroll.

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4 8 December 2016 Oconomowoc Area School District, WI: New Issue: Moody’s Assigns Aa2 to Oconomowoc Area School District, WI’s GOULT

The district’s other post-employment benefits (OPEB) liabilities is funded on a pay as you go basis, and the district contributed $1.6million in fiscal 2015. As of July 1, 2014, the most recent actuarial valuation date, the unfunded actuarial accrued liability for OPEBbenefits totaled $10.5 million.

Management and Governance: Solid, Prudent ManagementWisconsin school districts have an institutional framework score of “Aa”, or strong. School districts benefit from predictable and timelydisbursements of state aid and property tax revenue, the latter of which is made whole by overlapping governments. Districts operateunder revenue limits but have the ability to request voter authorization for levy overrides. Although state aid has been reduced inrecent years, Wisconsin's Act 10 legislation provides school districts with considerable expenditure flexibility as it curbs the bargainingpower of non-public safety government employees.

The district's management has a history of conservative budget assumptions and adjusting expenditures to match changes in revenues,reflected in a five year average operating expenditure to revenue ratio of 1.00.

Legal SecurityThe bonds secured by the district's general obligation unlimited property tax pledge on all taxable property within the district withoutlimitation as to rate or amount. Debt service does not benefit from a lock box structure or a statutory lien.

Use of ProceedsProceeds of the Series 2016 Bonds will finance various improvements and renovations throughout the district.

Obligor ProfileOconomowoc Area School District is located in southeastern Wisconsin in Dodge, Jefferson, and Waukesha Counties. The districtserves the city of Oconomowoc and portions of various surrounding towns, offering comprehensive educational programs for studentsin pre-kindergarten through the twelfth grade. Enrollment for the 2016-2017 school year is 5,366.

MethodologyThe principal methodology used in this rating was US Local Government General Obligation Debt published in January 2014. Please seethe Rating Methodologies page on www.moodys.com for a copy of this methodology.

Ratings

Exhibit 2

Oconomowoc Area School District, WIIssue RatingGeneral Obligation School Improvement Bonds,Series 2016

Aa2

Rating Type Underlying LTSale Amount $9,000,000Expected Sale Date 12/13/2016Rating Description General Obligation

Source: Moody's Investors Service

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5 8 December 2016 Oconomowoc Area School District, WI: New Issue: Moody’s Assigns Aa2 to Oconomowoc Area School District, WI’s GOULT

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6 8 December 2016 Oconomowoc Area School District, WI: New Issue: Moody’s Assigns Aa2 to Oconomowoc Area School District, WI’s GOULT

Contacts

Tatiana Killen 312-706-9972Analysttatiana.killen@moodys.com

Adebola Kushimo 214-979-6847VP-Senior Analystadebola.kushimo@moodys.com

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