Fitch Affirms Del Valle ISD, Texas' ULT Bonds at 'A'; Outlook Stable

The 'A' rating reflects the district's more recently strengthened financial position and growing enrollment base balanced against high debt levels, slowed tax base growth, and above average taxpayer concentration. The district benefits from its location in the broader Austin employment base and economy. While the recent Chapter 11 bankruptcy filing of the district's largest taxpayer, Spansion LLC, introduces a measure of instability to the district's current credit profile, Fitch notes that the district's exposure to possible property tax revenue losses is relatively modest as a percentage of its total revenues and the district's solid reserves and liquidity position provide a sufficient financial cushion. Spansion reportedly is current with its property tax payments to the district.

The district is located approximately six miles east of downtown Austin, serving a 170-square mile area that is largely unincorporated. Area wealth levels are below average. More recently, growth trends in the district's enrollment base have been affected by affordable land which spurred residential development as well as the opening of toll road Highway 130. District enrollment now totals just over 10,000 students and has grown recently at a solid 5% average annual rate. Tax base growth has been solid although erratic, averaging 8% annually over the past five years, remaining vulnerable to downturns in the technology sector; at $3.1 billion, fiscal 2010 taxable assessed valuation (TAV) declined modestly at about 2% from the prior year. Taxpayer concentration has declined over time, but remains high with Advanced Micro Devices (AMD) and Spansion LLC heading the top taxpayer list and contributing about 11% to the fiscal 2010 tax base.

Finances remain a credit positive. The district again reported a strong unreserved general fund balance of $29 million or roughly 40% of spending in fiscal 2009, which remained well above its informal operating reserve policy of maintaining no less than 20%. Liquidity is also substantial and reached $28 million or almost five months of cash on hand in fiscal 2009. A modest operating deficit of approximately $2.5 million is budgeted in fiscal 2010, primarily due to one-time capital expenditures. The district has no immediate plans to approach voters for additional M&O tax rate increases.

While debt levels have declined somewhat, they remain high. Overall debt levels approximate 7.2% of TAV or $5,300 on a per capita basis. Fitch anticipates debt levels will remain elevated over the near term with continued capital pressures from the district's solid enrollment growth trends. Amortization is slightly above average at 54.2% of principal retired in 10 years. District officials currently project issuance of the remaining $26 million portion from its 2007 authorization no earlier than the spring of 2010. Fitch believes the district may be challenged to issue additional debt without further, strong tax base growth as the district's debt service tax rate is currently approaching the state attorney general's $0.50 per $100 TAV test for supporting new debt.

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Fitch Ratings, New York
Rebecca C. Moses, +1-512-215-3739 (Austin)
Jose Acosta, +1-512-215-3726 (Austin)
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