AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following San Antonio Independent School District, TX bonds:
--$97.8 million unlimited tax refunding bonds, series 2011;
The 'AAA' long-term rating reflects the guarantee provided by the Texas Permanent School Fund (PSF), whose Insurer Financial Strength is rated 'AAA' by Fitch.
Fitch also assigns an 'AA' underlying rating to the series 2011 and the following bonds:
--$5.3 million unlimited tax refunding bonds, taxable series 2011A.
In addition, Fitch affirms the following ratings on the district's outstanding bonds:
--$600.4 million unlimited tax bonds at 'AA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The underlying rating reflects the district's
solid financial position and management's notable efforts to maintain
structural balance despite the challenges of shifting demographic
patterns that have caused its enrollment base to stagnate.
--Stabilization
of the enrollment base hinges on the successful implementation of the
district's comprehensive plan to restructure and improve its aging
schools. However, its demographic challenges are formidable given
county-wide population growth patterns in the suburban areas beyond the
district's boundaries.
--Capital plans are significant and will
further increase the district's already high debt burden.
--The
service area has fared relatively well during the national recession,
aided by its diverse economy, large and growing military presence, and
stable home prices; however, overall wealth levels remain below average.
KEY RATING DRIVER:
--The district's continued progress in its restructuring efforts aimed
at right-sizing its operations and capital plant is key to its long-term
financial sustainability and maintenance of credit quality.
--Successful
management of potential further declines in state aid.
SECURITY:
The bonds are secured by an unlimited property tax levy and are secured further by the PSF guarantee.
CREDIT SUMMARY:
The district, which covers about 80 square miles, is located in Bexar County and primarily encompasses downtown San Antonio. Prominent industries in the local economy are domestic and international trade, convention and tourism, military and government employment, medical and health care, finance, and telecommunications. Due primarily to shifting demographic patterns, the district's average daily attendance (ADA) has declined by a total of 9.2% since fiscal 2000, despite the district's efforts to reverse the trend through the expansion of early childhood programs, the implementation of alternative educational venues, such as internal charter schools, and previous bond-financed campus improvements.
The district's financial profile remains under pressure due to ongoing ADA declines. Notably, management avoided structural imbalances in fiscal years 2008 and 2009 through a combination of closing and re-purposing nine schools. School repurposing and closures, deferral of pay hikes in fiscal years 2008 and 2009, and leaner staffing levels enabled the district to cut over $36 million from fiscal 2008-2010, enabling the district to fund pay hikes in fiscal 2010. Fiscal 2009 posted a solid $9.9 million operating surplus, increasing the unreserved fund balance to $59.3 million or a strong 15.7% of spending. Audited fiscal 2010 results posted a modest gain of $348,000 despite the funding of a 4.9% pay hike. The fiscal 2011 budget is balanced, aided by mid-year budget cuts that have offset a shortfall in expected ADA growth.
The state legislature is in the process of deliberating potentially large cuts to state aid to school districts for the fiscal 2012-2013 biennium. The impact to the district may total as much as $51.8 million. The district's governing board has already approved $19.2 million in reductions and will consider another $14.9 million of reductions in April, for a total of $34.1 million. The district expects it can generate the remaining $17.7 million in cuts through increased class sizes and furloughs in order to maintain balanced operations.
In December 2010, the district issued the first installment of the large $515 million general obligation (GO) authorization approved by a high 66% of voters in November 2010. As total facility needs were estimated at $1.2 billion, the authorization will fund the first phase of the district's 10-12 year facilities plan. This initial phase will fund extensive renovations to 22 campuses, allowing the district to consolidate five campuses within three years, generating an estimated $10 million in annual operating costs. The long-term plan, which will need additional voter authorization, calls for the consolidation of a total of 14 campuses, inclusive of these first five schools. Adjusted for 30% state support for debt service, the district's overall debt burden is moderate on a per capita basis at $3,232 but high as a percentage of market value at 7.6%. The planned issuance of the remaining $415 million in authorization by 2014 will further increase the debt burden and increase the debt service tax rate to a projected maximum of a high $0.41 per $100 taxable assessed valuation (TAV), up considerably from the current $0.23 rate. Principal amortization is slow at 35% principal retired within 10 years.
In addition to the sources of information identified in Fitch's 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', dated Aug. 16, 2010;
--'U.S.
Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009;
--'State
Revolving Fund and Municipal Loan Pool Rating Guidelines', dated April
28, 2008.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
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
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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