Fitch Rates College Station ISD (Texas) ULTGOs 'AAA' PSF; 'AA+' Underlying

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to College Station Independent School District, Texas' (the district) $65,000,000 unlimited tax (ULT) school building bonds, series 2010. The rating is based on a guaranty provided by the Texas Permanent School Fund (PSF; IFS rated 'AAA' by Fitch). In addition, Fitch assigns an underlying 'AA+' rating to the series 2010 bonds. The bonds are expected to price via competitive sale Aug. 17, 2010.

Fitch has also affirmed the underlying rating for the district's approximately $141 million in outstanding ULT tax bonds at 'AA+':

The Rating Outlook is Stable.

RATING RATIONALE:

--The district financial profile is positive, characterized by sizeable reserve levels and notable financial flexibility;

--Anchored by the area's economic and employment driver, Texas A&M University, the local economy is stable although somewhat limited in scope. Local wealth levels are below average, due in part to the large student population;

--Enrollment growth is healthy but manageable in relation to the district's capital needs;

--The annual growth of the district's tax base is projected to moderate from previously rapid rates of expansion;

--Debt levels are moderately high but should trend down given the district's absence of debt plans over the medium term. With this issuance, the pace of amortization has slowed somewhat to an average level.

KEY RATING DRIVER:

--Solid reserves must be maintained to offset operating financial pressures associated with opening new facilities over the near term.

SECURITY:

The bonds are secured by an unlimited ad valorem tax pledge of the district. In addition, the bonds are secured by the Texas PSF guaranty.

CREDIT SUMMARY:

Located approximately 90 miles equidistant from Houston and Austin, the district serves the city of College Station, which is part of the larger College Station-Bryan metro area and functions as a regional hub for the predominately rural surrounding area. With nearly 50,000 students, the large, flagship campus of the Texas A&M University System in College Station is predominately located within the district's boundaries and drives much of area economy. Government, retail trade, health care and education are some of the area's largest non-agricultural employment sectors that historically provide stability to the local economy.

Unemployment levels are typically well below those of the state and nation, and the metro area's May 2010 unemployment rate of 5.8% continued that trend. While wealth levels are below average, they are affected by the large student population and somewhat mitigated by a lower cost of living in the region. Tax base growth is projected to be more moderate at about 2% in fiscal 2011 due in large part to overall weaker economic conditions, although the tax base remains substantial with a market value of $6.3 billion in fiscal 2010?the result of previously very healthy annual growth trends. Gains in the tax base have generally outpaced annual enrollment increases, which have averaged almost 5% annually over the past five fiscal years, resulting in a total of just over 10,000 students district-wide.

The district's financial position is a credit positive. Substantial reserve levels and healthy yet manageable enrollment growth have allowed for financial flexibility in the district's operations. Also, unlike most Texas school districts, College Station ISD has yet to fully use its discretionary operating tax levy that does not require voter approval. Despite growth pressures, conservative financial management has typically generated substantial operating surpluses annually and maintained sizeable reserve levels.

As of fiscal 2009, the district's unreserved general fund balance was a very strong $32 million or approximately 40% of spending, despite a modest $2.4 million net deficit. Liquidity also remained substantial at almost $33 million or not quite five months of cash on hand. Comparable to budget, district officials project a similar drawdown for fiscal 2010 due to the additional operating costs associated with opening a new school that would end the year with a total general fund balance of $29.5 million. The proposed $74.5 million fiscal 2011 operating budget is balanced under fairly conservative growth assumptions that maintain the current operating tax rate.

At approximately $3,700 per capita and 5.5% of market value, Fitch considers overall debt levels moderately high. With this issuance, principal amortization is now closer to average with almost 50% retired in ten years. The current offering is the second issuance from the $144.2 million bond authorization, which was approved by a historically large margin in May 2009. Bond proceeds will primarily finance the construction of the district's second comprehensive high school. Future capital needs are generally manageable as this authorization is projected to suffice for approximately five more years under current enrollment trends.

Applicable criteria available at 'www.fitchratings.com':

--'Revenue-Supported Rating Criteria' (Dec. 29, 2009);

--'State Revolving Fund and Municipal Loan Pool Rating Guidelines' (April 28, 2008);

--'Tax-Supported Rating Criteria' (Dec. 21, 2009);

--'U.S. Local Government Tax-Supported Rating Criteria' (Dec. 21, 2009).

Additional information is available at 'www.fitchratings.com'

Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493154

State Revolving Fund and Municipal Loan Pool Rating Guidelines

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=384150

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492466

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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