AUSTIN, Texas - (Business Wire) Fitch Ratings assigns an 'AA-' rating to Leander Independent School District, Texas' (the district) $51.5 million unlimited tax (ULT) refunding bonds, series 2009. In addition, Fitch affirms the approximately $1.2 billion in outstanding unlimited tax bonds at 'AA-'. The Rating Outlook is Stable. Scheduled for a negotiated sale as early as the week of Nov. 2, 2009, the bonds are secured by an unlimited ad valorem tax levied against all taxable property within the district. Proceeds will be used to refund a portion of the district's outstanding debt and pay issuance costs.
The 'AA-' rating reflects the district's solid financial performance while contending with pressures associated with recent rapid enrollment growth balanced against slowed tax base growth and very high debt levels and slow amortization. Future capital pressures are expected to decline somewhat with delayed new school construction in light of slower enrollment growth. As a result, Fitch believes that the district's debt burden will decline modestly with a slower pace of future debt issuances and ongoing tax base growth. The district's ability to sustain strong reserve levels and a moderating debt profile will be integral to maintaining credit quality.
Largely residential in nature, the district benefits from its location in the broad economic and employment base of the Austin-Round Rock metropolitan area. Area wealth levels generally exceed those of the state and nation. While the district has historically experienced strong levels of tax base growth due to the availability of affordable land, fiscal 2010 taxable assessed valuation (TAV) grew at a much more modest pace of about 3% from the prior year, reflecting a weakened housing market. As a result of area residential development, enrollment that currently totals about 30,000 students 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 recently slowed to nearly 7% over the past two years. Nonetheless, Fitch notes the potential for a return to higher levels of enrollment growth remains in light of revised demographic projections that project the district reaching a total of about 55,000 students by 2018.
Finances are a positive credit factor. Over the past five fiscal years, the district consistently has recorded operating surpluses, and solid reserve levels enhance the district's financial flexibility. In addition, the district uses $0.03 of its O&M tax levy for major maintenance projects, which provides additional flexibility. At the close of fiscal 2008, the unreserved general fund balance totaled $61.7 million, which represented about 32% of spending and exceeded the district's optimum unreserved general fund balance target of 25% of expenditures. The district now anticipates closing fiscal 2009 with a modest $1.1 million drawdown from general fund reserves due to enrollment levels that were lower than originally projected. An operating deficit of $5 million is currently projected in the fiscal 2010 budget, primarily due to the additional operating costs associated with opening new schools and salary increases, but which may be mitigated in part by revenue gains from higher than budgeted enrollment. The district has no immediate plans to approach voters for additional M&O tax rate increases.
Fitch considers the district's debt levels very high. In addition, amortization is slow, reflecting the use of capital appreciation bonds (CABs) to minimize tax rate impacts and to shift the debt burden to future taxpayers. Also, recent debt offerings have been structured with a payout exceeding 30 years in order to meet the district's capital requirements while maintaining a debt service tax rate below the cap of $0.50 per $100 of TAV imposed by the state attorney general for the issuance of new debt. Debt ratios will likely remain high for some time; however, Fitch now expects pressure on the debt ratios to decline as enrollment pressures have eased. The current offering will be used to refund certain outstanding obligations and generate a present value savings for the district without extension of debt. A $559 million authorization was approved by voters in November 2007; the remaining $300 million will be sold from 2010-2013. The district is not expected to return to voters for additional authorization prior to 2013.
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Fitch Ratings, Austin
Rebecca C. Moses, +1-512-215-3739
Jose Acosta, +1-512-215-3726
or
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com
