AUSTIN, Texas--()--Fitch Ratings assigns an 'AAA' rating to Leander Independent School District, Texas' (the district) $52,630,000 unlimited tax refunding bonds, series 2010A, based on a guaranty provided by the Texas Permanent School Fund (PSF; Fitch Insurer Financial Strength rating 'AAA').
In addition, Fitch assigns an underlying 'AA' rating to the district's series 2010A bonds.
The bonds are expected to price via negotiation Nov. 16, 2010.
Fitch also affirms the underlying rating for the district's outstanding bonds as follows:
--Approximately $1.2 billion (net of refunding) in outstanding unlimited tax bonds at 'AA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The district has historically maintained a
strong financial position and generated sizable operating surpluses
despite rapid enrollment growth pressures. Projected results for fiscal
2010 are expected to maintain the district's solid reserve levels.
--Tax
base growth has historically been strong, resulting in further
diversification; however, such growth has slowed recently due to the
weaker economy and housing market.
--The district benefits from its
location in the broad economic and employment base of the Austin-Round
Rock metropolitan area, which has above average wealth levels.
--Debt
levels are very high and amortization of principal is slow. However,
future capital pressures are expected to decline somewhat with
management's slowed pace of new school construction, lower levels of
enrollment growth, and capacity in existing facilities. As a result,
Fitch believes that the district's debt burden will continue to decline
modestly, assisted by ongoing tax base growth.
KEY RATING DRIVER:
--The district's ability to sustain strong
reserve levels and a moderating debt profile will be integral to
maintaining credit quality.
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:
Largely residential in nature, the district
benefits from its location in the broad economic and employment base of
the Austin-Round Rock metropolitan area. At 6.8% in September 2010,
unemployment in the metro area has declined on a year-to-year basis
while remaining below state and national levels. Area wealth levels
generally exceed those of the state and the U.S. While the district has
historically experienced double-digit levels of tax base growth due to
the availability of affordable land, taxable assessed valuation (TAV)
has grown at a more modest pace recently (about 9% from the prior year
in fiscal 2011), primarily reflective of a weaker housing market. As a
result of area residential development, enrollment grew very rapidly,
increasing at an average annual pace of not quite 10% between fiscal
years 2003 and 2008. With the economic slowdown, annual enrollment
growth trends have slowed as well but remain strong at about 7% in the
past three years; district enrollment currently approximates 32,000
students. At present, demographic studies project a somewhat slower pace
of enrollment growth going forward in light of the slowed development of
single-family homes, however, increased density trends in the district
may bring a return to higher levels of enrollment growth over the
long-term.
The district's financial position is a positive credit factor. For the five fiscal years ending in 2008, the district recorded operating surpluses that resulted in strong reserve levels which enhanced its financial flexibility. In contrast, fiscal 2009 results reflected a modest $3.6 million operating deficit due primarily to revenue losses from lower than projected enrollment growth. In spite of this modest draw on reserves, fund balance levels remained solid; the undesignated general fund balance totaled $46.6 million, which represented almost 22% of spending and exceeded the district's formal reserve policy of maintaining no less than two months of operating reserves. Unaudited fiscal 2010 results are slightly stronger than previously projected; district officials currently project adding approximately $3.2 million to general fund reserves, which will maintain reserve levels at a solid 21% of spending.
Management further tightened spending in fiscal 2011 and the adopted $236 million general fund operating budget was fundamentally balanced without an operating tax increase while opening a new school facility, providing pay raises, and maintaining the use of a portion ($0.01) of its maintenance and operations (M&O) tax levy, albeit at a reduced level, for major maintenance projects. The decision to delay the opening of another school facility until fiscal 2012 with its subsequent impact on the operating budget also provided savings for the district. While actual enrollment is less than previously projected, fiscal 2011 revenues and expenditures are reported to be generally on track with budget; a modest $1-$2 million addition to reserves by year's end is preliminarily projected at this time.
Fitch considers the district's debt levels very high. Overall debt levels approximate 12% of market value and nearly $15,000 per capita. In addition, amortization is slow, reflecting in part the use of capital appreciation bonds (CABs) to minimize tax rate impacts and shift the debt burden to future taxpayers. Approximately 38% of the district's direct debt is retired in 10 years on a non-accreted basis. Debt ratios will likely remain high for some time; however, Fitch expects pressure on the debt ratios to decline as near-term enrollment pressures have eased. Accordingly, management reports plans for new school facilities have been pushed back further; the remaining $229 million bond authorization is now expected to last three more years until 2017 with another bond election projected no earlier than the fall of 2013.
Additional information is available at www.fitchratings.com.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc, and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating
Criteria' (Aug. 16, 2010);
--'U.S. Local Government Tax-Supported
Rating Criteria' (Oct. 8, 2010);
--'Revenue Supported Rating
Criteria' (Oct. 8, 2010);
--'State Revolving Fund and Municipal
Loan Pool Rating Guidelines' (April 28, 2008).
Applicable Criteria and Related Research:
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=564566
Revenue-Supported
Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564565
State
Revolving Fund and Municipal Loan Pool Rating Guidelines
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=384150
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