AUSTIN, Texas (Business Wire) -- Fitch Ratings assigns an 'AAA' rating to the San Benito Consolidated Independent School District (CISD), Texas (the district) $37 million unlimited tax school building bonds, series 2008.
The 'AAA' rating is based on the guarantee provided by the Texas Permanent School Fund (PSF), whose insurer financial strength (IFS) is rated 'AAA' by Fitch. In addition, Fitch has assigned an initial 'A-' underlying rating to the series 2008 bonds and the district's $74.5 million in outstanding unlimited tax bonds. The series 2008 bonds are scheduled for a negotiated sale as early as Aug. 18, 2008. The Rating Outlook is Stable.
The bonds are direct obligations of the district, payable from and secured by an unlimited property tax levied against all taxable property within the district. The bonds are further secured by the PSF guarantee. Proceeds will be used for construction, renovations, equipment of school buildings, and to pay issuance costs.
The initial 'A-' underlying rating reflects the district's healthy taxable assessed valuation (TAV) growth, favorable financial performance with adequate fund balance reserves, and financial pressure from rising health insurance costs. The rating also reflects the district's manageable debt burden aided by substantial support received from the state. The district receives over 75% of its funding for both operations and debt service from the state due to its low wealth per student ratio. Maintenance of adequate financial reserves, given the pressures the district is experiencing with rising health insurance costs, is essential to the rating. Nonetheless, the district's conservative financial practices and historical operating trends suggest that the district will be able to maintain its financial profile satisfactorily over the near term.
The district is located in Cameron County (rated 'A+' by Fitch), at the southern tip of Texas in the Lower Rio Grande Valley between the cities of Harlingen and Brownsville. Serving primarily the City of San Benito and unincorporated areas in the county, the district encompasses 101 square miles and has a current student enrollment of 11,000. Enrollment has increased at a steady clip, averaging about 2.8% annual growth over the past five years and projected to increase by about 3.3% annually in the near term. Although the district's tax base is limited, TAV gains have been healthy, outpacing enrollment with a compound average annual growth rate of 8.3%. The city's economy has historically been tied to Harlingen and Brownsville and has included a sizable agriculture and manufacturing component, although in recent years, the city's economy has experienced some growth in retail and service industries, as well as tourism. Typical of most Texas border communities, wealth levels in the city are substantially below state and national averages.
District financial operations are sound. The district has consistently reported positive operating results before transfers each of the last five years despite the opening of three new campuses to contend with its growing enrollment. Overall, the district has drawn down a modest amount of fund balance reserves due to rising health insurance costs, but maintains an adequate fund balance of $7.6 million or 9.4% of expenditures and transfers out. The district's informal unreserved fund balance target is approximately two months of expenditures and transfers out as recommended by the Texas Education Agency (TEA). For fiscal 2008, the district anticipates adding approximately $400,000 to its general fund balance and reports that transfers for health insurance costs were significantly lower than the prior year. The fiscal 2009 budget is expected to be balanced.
The current offering constitutes the entire bond package approved with 59% voter support in May 2008. The bond proposal included construction of one new elementary school, classroom additions, renovation of multiple teaching facilities, HVAC improvements, and enclosure of playground facilities at the elementary schools. District debt ratios aided by substantial state support are low on a per capita basis and moderately high as a percentage of TAV. Debt amortization is below average with nearly 40% of principal maturing in ten years.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings, Austin
Gabriela Quiroga, +1-512-215-3731
Rebecca Moses, +1-512-215-3739
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
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