Fitch Ratings assigns an 'AAA' rating to Tyler Independent School District (ISD), Texas' (the district) approximately $7.9 million unlimited tax (ULT) refunding bonds, series 2010, based on a guaranty 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 2010 bonds.
In addition, Fitch affirms the underlying rating on the district's outstanding bonds as follows:
--Approximately $214.5 million in outstanding unlimited tax bonds at 'AA+' (net of refunding).
The Rating Outlook is Stable.
The bonds are expected to sell via negotiation on May 27, 2010.
RATING RATIONALE:
--The district is part of a large regional economy with a stable and diverse tax base and healthy taxable assessed valuation (TAV) growth.
--Conservative financial management, substantial reserve levels, and manageable enrollment growth levels have allowed for financial flexibility in the district's operations.
--The district received strong voter support for its capital program.
--Debt levels are moderate despite recent large debt issuance and amortization is slightly below average.
KEY RATING DRIVER:
--The district's ability to manage expenditures and maintain solid reserves will be integral to maintaining its high credit quality.
SECURITY:
The bonds are a general obligation of the district payable from and secured by the proceeds from an unlimited tax levied against all taxable property within the district. The bonds also are guaranteed as to payment by the Texas PSF.
CREDIT SUMMARY:
Located in the eastern portion of Texas along Interstate 20 in Smith County, the district encompasses 206 square miles and includes the city of Tyler. Totaling about 18,300 students in fiscal 2010, the district's enrollment growth has averaged a modest 1% annually since fiscal 2004. The district is part of the larger Tyler metropolitan statistical area (MSA) that serves as a regional hub particularly for health care and higher education and is estimated to total approximately 200,000 in population. MSA unemployment rates are typically slightly lower than those of the state. Wealth levels are slightly below those of the state; however, this is somewhat mitigated by the relatively lower cost of living in the region. District TAV grew at a healthy yet steady pace, averaging gains of almost 8% annually from fiscal 2004 to 2009, but moderated in fiscal 2010; TAV is projected to be flat for fiscal 2011.
Financial performance has been strong with the district recording surplus results in four of the last five fiscal years. While the district posted a net deficit for fiscal 2009, the drawdown was modest and was attributable to capital outlays. Notably, the district has cash funded about $2 million annually in capital outlays over the past five fiscal years. Aided in part by a one-time state reimbursement for past underpayments of state funds, the district increased its reserves by $9 million in fiscal 2008. Despite the modest deficit at the close of fiscal 2009, the district's unreserved general fund balance was solid at $32.2 million, or 24.1% of expenditures. The district currently projects ending fiscal 2010 with a modest surplus. For fiscal 2011, district officials plan to adopt a balanced budget.
Direct and overall debt levels are moderate with a recent issuance that nearly doubled the district's debt. The district is completing projects approved by 65% of voters for rebuilding, renovating, and repurposing various elementary school facilities. The district is currently evaluating its capital needs at the secondary education level and may approach voters for an additional authorization sometime in the next two years. Amortization is somewhat below average; in 10 years, less than 45% of principal will be retired.
Applicable criteria available on Fitch's website at www.fitchratings.com:
'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.
'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.
Additional information is available at www.fitchratings.com.
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Contacts:
Fitch Ratings, New York
Gabriela Gutierrez, +1-512-215-3731 (Austin)
Jose
Acosta, +1-512-215-3726 (Austin)
Media Relations:
Cindy
Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com