NEW YORK - (Business Wire) Fitch Ratings assigns an 'AAA' rating to Mesquite Independent School District, Texas' (MISD or the district) $13.1 million unlimited tax refunding bonds, series 2008 based on a guaranty provided by the Texas Permanent School Fund (PSF), whose insurer strength is rated 'AAA' by Fitch. In addition, Fitch has also assigned an underlying 'AA' rating to the series 2008 bonds and affirms the district's approximately $439 million in outstanding parity bonds at 'AA'. The Rating Outlook is Stable.
Scheduled for a negotiated sale as early as Sept. 11, 2008 the bonds are direct obligations of the district, secured by an unlimited ad valorem tax levied against all taxable property within the district. The bonds are further secured by the Texas PSF guaranty. Proceeds will be used to refund a portion of the district's outstanding debt for interest savings and pay costs of issuance.
The underlying 'AA' rating is based on the district's sound financial management characterized by continued maintenance of sizeable reserves and moderate debt levels assisted by significant state support. Enrollment growth has been manageable and it is projected to remain so over the near term. As part of the larger Dallas-Fort Worth metro area and regional economy, the district's somewhat diverse tax base has experienced healthy taxable assessed valuation (TAV) growth. With various retail and commercial projects in development or under construction, Fitch views the district's prospects for continued tax base growth as promising, although preliminary values for fiscal 2009 indicate a recent slowdown in local development. However, current financial performance and strong state support suggest the district will be able to maintain its sound financial profile over the near term.
Located about 35 miles east of downtown Dallas, MISD encompasses 55 square miles in Dallas County. A maturing, middle-class area, the city of Mesquite (estimated 2007 population of nearly 132,000) and the city of Balch Springs benefit economically from the three interstate highways that traverse the district. The city of Mesquite's economic base includes retail, manufacturing, warehousing, and distribution enterprises, along with a number of business parks in various stages of planning, construction, and leasing. With current TAV of $7.1 billion, TAV growth has averaged 5% annually in the last five fiscal years. Roughly 60% of the district's tax base is residential. Residential development has been strongest in the southern portion of the district, and district officials presently report fairly flat levels of new home construction. Preliminary information regarding fiscal 2009 TAV indicates minimal tax base growth of approximately 1% over the prior year that was attributable primarily to retail and commercial development.
Enrollment, currently around 37,000 students, has grown manageably at an annual average of nearly 2% over the past five fiscal years and district officials expect that trend to continue. Although taxable value growth has typically outpaced enrollment gains, the district has historically received over half of its operating revenues from state support, as it is considered property poor for the purposes of state funding.
The district maintained its reserve levels in fiscal 2007 comparable to the prior year with a $45 million unreserved general fund balance or close to 19% of spending, which comfortably exceeded the district's operating reserve policy of approximately two months of expenditures. Liquidity remained substantial with fiscal 2007 general fund cash and investments totaling $36 million. District officials anticipate closing fiscal 2008 with the addition of $2-$3 million to general fund balance. The fiscal 2009 budget was reportedly adopted with very conservative revenue estimates that included a drawdown of $500,000-$800,000 from general fund reserves, although Fitch expects closer to breakeven operations given prior years' performance relative to budget. In addition, the budget anticipates 4% across the board salary increases that should enable the district to maintain its competitive position in the area for starting teachers. District officials indicate MISD may approach voters for an additional, discretionary operating tax levy in November 2009 or 2010.
This issuance will be used to refund certain outstanding obligations and generate an interest savings for the district. The district has approximately $130 million in remaining authorization from a successful 2007 election that is expected to fund the district's capital improvements for the next four to five years. The majority of the authorization will be used for renovation/expansion of existing facilities and a new elementary school. The next new money issuance is anticipated at $50 million in 2009. District debt levels are moderate, and are expected to remain so considering that approximately half of the district's debt service is supported by the state due to the district's low property wealth. Amortization is above average with 60% of principal retired in ten years.
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Fitch Ratings, Austin
Rebecca C. Moses, 512-215-3739
Andy Kaaz, 512-215-3730
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