Fitch Ratings assigns its 'AAA' rating to Valley View
Independent School District's (VVISD) $16.3 million unlimited tax
school building bonds, series 2006 based on a guarantee by the Texas
Permanent School Fund (PSF) whose insurer financial strength (IFS) is
rated 'AAA' by Fitch Ratings. In addition, Fitch assigns an 'A-'
underlying rating to the bonds and assigns an initial 'A-' underlying
rating to the district's $22.8 million in outstanding unlimited tax
bonds. The bonds are scheduled to sell the week of Aug. 28 via
negotiation to Estrada Hinojosa & Company Inc. The Rating Outlook is
Stable.
The bonds are direct obligations of the district payable from a continuing ad valorem tax levied by the district without legal limit as to rate or amount on all the taxable property within the district. The bonds are also secured by a guaranty from the PSF. Proceeds will finance the construction and equipping of various school facilities and pay costs of issuance.
The underlying 'A-' rating reflects VVISD's strong financial performance, rapid gains in taxable assessed values (TAV), and significant state support for both debt service and operations. Credit concerns include the district's moderate debt levels that are expected to climb as a result of increased capacity needs, slow debt amortization, and weak tax collections. Located along the Mexican border in the Lower Rio Grande Valley, the district is experiencing dramatic enrollment increases. Despite this pressure, the district has managed operations well, maintaining sizeable reserves and operating flexibility.
VVISD is situated in the fast-growing Hidalgo County and primarily serves the city of Pharr. Traditionally an agricultural area, the district's close proximity to McAllen and nearby maquiladores or 'twin plants' have led to increased residential development in recent years, which has in turn fueled rapid enrollment expansion approximating 10% annually since fiscal 2001. Student increases are expected to continue at this level through at least fiscal 2011, which will require ongoing expansion of district facilities.
Debt ratios are moderate when including a substantial amount of anticipated state support for debt service assistance, but will likely rise in the future with additional voted bond authorization. After this offering, the district's remaining $3.9 million in authorization is expected to be issued by fiscal 2008, and, while there are currently no plans to go back to the voters, facility needs may require additional authorization within the next three years. Including state support of approximately 82% of debt service, the district's combined direct and overlapping debt levels are 4.6% of TAV and nearly $1,000 per capita; ratios excluding state support are prohibitively higher. Amortization is relatively slow with only 31% of principal maturing in ten years. However, the modest payout is somewhat understandable as the district seeks to limit the tax rate impact and given the state does not reduce assistance for extended maturities.
From fiscal years 2002-2007 residential development more than doubled within the district, helping to push TAV levels upwards at a clip of nearly 15% annually. With several hundred residential lots reportedly either platted or in the development stage, continued healthy TAV gains appear probable in the near-term. As is typical with most border entities, district current tax collections are weak at less than 90%. However, the district typically budgets collections of around 85%, and given total collections approximate 100% and state support accounts for the majority (around 80%) of district operating revenues, this concern is somewhat mitigated.
Financial reserves are healthy and operations have typically yielded annual surpluses. From fiscal years 2001-2004 the district posted net income of at least $1.2 million each year before experiencing an operating deficit of $2.5 million in fiscal 2005. Despite the drawdown, reserves remained strong at the end of the 2005 reporting period, with the unreserved and undesignated general fund portion at nearly 33% of expenditures and transfers out. Also, during fiscals 2004 and 2005, the district used general fund monies to make site acquisitions totaling $2.8 million for two new facilities, both of which will be reimbursed from bond proceeds. Operations for fiscal 2006 and preliminary budget estimates for fiscal 2007 call for balanced performance, which will allow the district to maintain its three-month general fund reserve policy.
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.
The bonds are direct obligations of the district payable from a continuing ad valorem tax levied by the district without legal limit as to rate or amount on all the taxable property within the district. The bonds are also secured by a guaranty from the PSF. Proceeds will finance the construction and equipping of various school facilities and pay costs of issuance.
The underlying 'A-' rating reflects VVISD's strong financial performance, rapid gains in taxable assessed values (TAV), and significant state support for both debt service and operations. Credit concerns include the district's moderate debt levels that are expected to climb as a result of increased capacity needs, slow debt amortization, and weak tax collections. Located along the Mexican border in the Lower Rio Grande Valley, the district is experiencing dramatic enrollment increases. Despite this pressure, the district has managed operations well, maintaining sizeable reserves and operating flexibility.
VVISD is situated in the fast-growing Hidalgo County and primarily serves the city of Pharr. Traditionally an agricultural area, the district's close proximity to McAllen and nearby maquiladores or 'twin plants' have led to increased residential development in recent years, which has in turn fueled rapid enrollment expansion approximating 10% annually since fiscal 2001. Student increases are expected to continue at this level through at least fiscal 2011, which will require ongoing expansion of district facilities.
Debt ratios are moderate when including a substantial amount of anticipated state support for debt service assistance, but will likely rise in the future with additional voted bond authorization. After this offering, the district's remaining $3.9 million in authorization is expected to be issued by fiscal 2008, and, while there are currently no plans to go back to the voters, facility needs may require additional authorization within the next three years. Including state support of approximately 82% of debt service, the district's combined direct and overlapping debt levels are 4.6% of TAV and nearly $1,000 per capita; ratios excluding state support are prohibitively higher. Amortization is relatively slow with only 31% of principal maturing in ten years. However, the modest payout is somewhat understandable as the district seeks to limit the tax rate impact and given the state does not reduce assistance for extended maturities.
From fiscal years 2002-2007 residential development more than doubled within the district, helping to push TAV levels upwards at a clip of nearly 15% annually. With several hundred residential lots reportedly either platted or in the development stage, continued healthy TAV gains appear probable in the near-term. As is typical with most border entities, district current tax collections are weak at less than 90%. However, the district typically budgets collections of around 85%, and given total collections approximate 100% and state support accounts for the majority (around 80%) of district operating revenues, this concern is somewhat mitigated.
Financial reserves are healthy and operations have typically yielded annual surpluses. From fiscal years 2001-2004 the district posted net income of at least $1.2 million each year before experiencing an operating deficit of $2.5 million in fiscal 2005. Despite the drawdown, reserves remained strong at the end of the 2005 reporting period, with the unreserved and undesignated general fund portion at nearly 33% of expenditures and transfers out. Also, during fiscals 2004 and 2005, the district used general fund monies to make site acquisitions totaling $2.8 million for two new facilities, both of which will be reimbursed from bond proceeds. Operations for fiscal 2006 and preliminary budget estimates for fiscal 2007 call for balanced performance, which will allow the district to maintain its three-month general fund reserve policy.
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.