Fitch Rates Longview ISD's (Texas) ULT GOs 'AAA' PSF; 'AA' Underlying

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to Longview Independent School District, Texas' (the district) $53,000,000 unlimited tax (ULT) school building bonds, series 2010 and $8,875,000 unlimited tax qualified school construction bonds, series 2010. The rating is based on a guaranty provided by the Texas Permanent School Fund (PSF; Insurer Financial Strength rated 'AAA' by Fitch).

In addition, Fitch assigns an underlying 'AA' rating to the series 2010 bonds.

The bonds are expected to price via negotiated sale Sept. 9, 2010.

Fitch also affirms the following rating:

--Approximately $199 million in outstanding ULT bonds and $250,000 in outstanding general obligation (GO) limited tax debt at 'AA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The district's financial position is a credit positive, characterized by sizeable reserve levels.

--The district benefits from its location in a larger industrial and retail regional economy along major transportation corridors.

--The modest decline in taxable values projected for fiscal 2011 reverses previously healthy rates of growth.

--The enrollment base is generally stable, assisted by recent, modest gains that reversed an earlier trend of modest enrollment declines.

--Direct debt levels are high; principal amortization is slow. Capital needs are expected to be minimal after this authorization.

KEY RATING DRIVER:

--The district's ability to maintain fiscal balance and solid reserve levels is key to maintaining long-term credit quality, particularly in light of its fluctuating enrollment trend.

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:

Longview ISD is located in Gregg County, approximately 120 miles east of Dallas and 60 miles west of Shreveport, LA and is served by major transportation corridors. The district is part of the larger Longview metropolitan statistical area (MSA) that serves as the industrial, retail, and distribution center for East Texas and is estimated to total about 207,000 in population. Area wealth levels are somewhat below state and national averages; however, this is largely mitigated by the lower cost of living of the region. The local economy, which has long served as a center for oil and natural gas operations, has become increasingly diversified. Education, health care, manufacturing, transportation/distribution, government, and retail trade are all major employment sectors. While local unemployment levels rose in 2009, Longview MSA unemployment levels have dropped slightly on a year-to-date basis to 7.8% as of June 2010 and remain below those of the state and U.S. Almost half of the district's tax base is commercial/industrial, and since fiscal 2006, assessed valuations have grown steadily, averaging gains of approximately 9% annually. Valuations for fiscal 2011 are projected to decline by a modest 5%, however, led by mineral value declines.

Area population growth has been modest at an average annual rate of approximately 1%, which is below that of the state. Totaling about 8,350 students in fiscal 2010, the district's enrollment base is generally stable but has fluctuated in recent years. Modest enrollment gains within the past two fiscal years have reversed an earlier trend of modest enrollment declines, although overall enrollment growth remains minimal at less than 1% on average annually since fiscal 2005.

The district's financial reserves have trended upwards since fiscal 2003, and audited results for fiscal 2009 continued that trend. The district added approximately $2.2 million to general fund reserves, assisted in part by lower than projected capital outlays due to construction savings, which brought the unreserved general fund balance to $28.8 million or almost 48% of spending. Due to a $4 million drawdown for various capital projects, management projects a modest decline in reserves by the close of fiscal 2010 to about $25.5 million, which equals a still very strong 40% of spending. The fiscal 2011 operating budget is balanced and a very modest addition to reserves is anticipated by year's end.

Direct debt levels are high at roughly 5.8% of market value or $5,500 per capita. Amortization of principal is slow at almost 21% in 10 years. The current offering represents the third portion of the district's nearly $267 million authorization passed by a slim majority of voters in May 2008; approximately $11 million remains authorized but unissued. The total authorization will be used for rebuilding, renovating or repurposing all of the district facilities.

Considerations for Taxable/Build America Bonds Investors

This sector credit profile is provided as background for investors new to the municipal market.

Local Government General Obligation Bonds

The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. local government can provide to the repayment of its long-term borrowing and, therefore, is the best indicator of its overall credit quality. The average local government general obligation rating is 'AA', with approximately 85% rated at or above 'AA-' and 1% rated 'BBB+' or below. The relatively high ratings reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and lack of competition for services provided by local governments. Those with low investment-grade or below-investment-grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities, including debt and post-employment benefits, and/or unusually limited financial flexibility. For additional information on these ratings, see 'U.S. Local Government General Obligation Rating Guidelines,' dated Dec. 21, 2009 and available on Fitch's Web site at 'www.fitchratings.com'.

In addition to the sources of information identified in the report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, LoanPerformance, Inc, and IHS Global Insight.

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

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' (Aug. 16, 2010);

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

Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548606

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=548605

U.S. Local Government Tax-Supported Rating Criteria

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

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