logo
  Join        Login             Stock Quote

Fitch Rates Aledo ISD, TX's ULT Bonds 'AAA' PSF/'AA' Underlying; Outlook Stable

Thursday, April 4, 2013 2:55 PM


Fitch Ratings has assigned an 'AAA' rating to the following Aledo Independent School District, Texas' (the district) unlimited tax (ULT) bonds:

--$8.9 million in ULT refunding bonds, series 2013-A;
--$16.9 million in ULT refunding bonds, series 2013-B.

The 'AAA' long-term rating on the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch.

The bonds are scheduled for negotiated sale the week of April 8. Proceeds will be used to refund a portion of the district's outstanding ULT debt for interest savings.

Fitch also assigns an 'AA' underlying rating to the bonds and affirms the 'AA' underlying rating on the district's $114.7 million in outstanding ULT bonds.

In addition, the sale of the Aledo ISD ULT refunding bonds series 2005-C was delayed. The bonds were sold as series 2006 (see the Oct. 7, 2005 rating commentary 'Fitch Rates Aledo ISD, Texas, ULT Bonds 'AAA' PSF/'A-' Underlying'). The correct rating history is now reflected on Fitch's web site at www.fitchratings.com.

The Rating Outlook is Stable.

SECURITY:

An unlimited ad valorem tax levied against all taxable property within the district's boundaries. The bonds are also secured by a guaranty of the Texas PSF.

KEY RATING DRIVERS

STRONG FINANCIAL POSITION: A string of operating surpluses after transfers has preserved strong reserve and liquidity levels. The district has successfully managed pressure from state budget cuts, in part through a tax rate restructuring.

GOOD SOCIO-ECONOMIC PROFILE: The district benefits from its proximity to the broad employment base of Fort Worth. Area employment indicators are positive and wealth metrics are above average.

TAX BASE CONCENTRATION & VOLATILITY: Top taxpayers are heavily concentrated in the oil and gas industry due to the district's location over workable portions of the Barnett Shale natural gas play. Taxable assessed valuation (TAV) remains soft due to declining oil/gas valuations.

WEAK DEBT PROFILE: Overall debt ratios and annual debt carrying costs are high as a result of the capital pressures from a previously rapid pace of enrollment growth. Amortization is slow, in part due to the use of capital appreciation bonds (CABs).

LIMITED PENSION & OPEB LIABILITIES: Employee pensions and other post-employment benefits (OPEB) are primarily a burden of the state, resulting in very low annual retiree costs for the district.

RATING SENSITIVITIES:

MATERIAL DECLINE IN FISCAL CUSHION: With regard to the 'AA' underlying rating, Fitch views the district's strong level of operating reserves as a key offset to the high debt levels and artificially low debt service tax rate.

WORSENING DEBT PROFILE: Sustained TAV weakness and/or further debt issuance without corresponding TAV growth could also pressure the underlying rating.

CREDIT PROFILE:

Aledo Independent School District (ISD) is located primarily in Parker County and includes the city of Aledo, a small, historically agricultural center. Aledo is located 19 miles west of Fort Worth (GOs rated 'AA+' by Fitch) near Interstate Highway 20.

AFFLUENT RESOURCE BASE LOCATED NEAR BROAD AND STABLE FORT WORTH MSA

Aledo continues to transition from an agriculture-based economy to an affluent bedroom community of Fort Worth. Numerous high-end residential developments have been completed in recent years. As a result, market value per capita is above average at $154,000 in fiscal 2013. Residents are well-educated and affluent; the median household income in Parker County is 125% of state and 120% of U.S. income, respectively.

Residents benefit from proximity to the broad employment base and stable economy of Fort Worth, and area employment and wealth levels are a credit positive. Employment growth in Parker County continues, expanding 2.7% for the 12-month period ending December 2012 and improving the unemployment rate to a relatively low 5.4% from 6.3%. The county's unemployment rate is lower than MSA, state, and national figures.

TAX BASE AFFECTED BY MINERAL VALUATIONS & RESIDENTIAL DEVELOPMENT

The district's tax base is primarily residential with some oil and gas exposure due to its location over parts of the Barnett Shale natural gas field. Recent declines in TAV have been due to weakness in oil/gas values, which made up 19% of fiscal 2011 TAV but fell to 10% of fiscal 2013 TAV due to decreased drilling activity and weak natural gas prices. The impact to net TAV was a 6% decline in fiscal 2012 and marginal 0.6% contraction in fiscal 2013.

Officials expect a stable-to-positive TAV trend in the next few years, with further oil/gas contraction expected to be offset by gains in residential values. District residential valuations have remained positive and area home prices according to Zillow indicate a 6.7% year-over-year gain for Aledo in February 2013. Over the near term, TAV growth may accelerate as construction of a very large residential subdivision (Walsh Tarlton) commences.

Top taxpayer and industry concentration is a concern. The top 10 taxpayers comprised an above-average 14.7% of fiscal 2013 TAV, and nearly all of the top 10 are oil and gas related companies. However, the large residential component of the tax base, stable home valuations, and prospects for continuing residential development help mitigate the concern of concentration risk.

Historical enrollment gains averaged just over 4% annually from 2005-2009 but slowed to less than 1% in recent years as housing construction stalled. Management expects this lower level of growth to continue before picking back up in 2015 as the housing market strengthens; the district retains ample room for development.

POSITIVE OPERATING MARGINS BOOSTED BY CHANGE IN TAX RATE STRUCTURE

The district has generated operating surpluses in five of the last six fiscal years. Given the relatively high property tax wealth per student, local property taxes are the main source of general fund revenues. The district swapped a portion of its operating and debt service tax rates in fiscal 2011 ($0.13 or 9% of the total tax rate) with voter-approval, increasing the operating tax rate and decreasing the debt service tax rate by an equivalent amount to yield enhanced state and local revenues for operations, but an annual debt service fund shortfall of just under $3 million. To date, this shortfall has been made whole by use of debt service fund balance.

Fitch views the use of this tax rate structure with concern but notes the debt service tax rate can be raised as needed (without voter approval) - thereby easing pressure on the general fund - and the tax rate swap could be reversed, if necessary.

STRONG FISCAL CUSHION MAINTAINED DESPITE STATE FUNDING CUTS

Net fiscal 2012 results across the general and debt service funds were essentially break-even, with the $2.8 million general fund surplus after transfers equal to the $2.8 million deficit in the debt service fund. Management absorbed a $2.2 million state funding cut (6% of general fund revenues) through spending reductions and use of one-time federal aid totaling about $700,000. The fiscal 2012 unrestricted fund balance equaled $19.7 million or nearly 57% of operating expenditures and year-end cash/investment balances improved to 17 times coverage of current liabilities.

The fiscal 2013 $36.5 million operating budget forecasts a $1.8 million operating deficit after transfers (equal to 5% of spending) due to additional state funding cuts, increased staffing needs, and cessation of one-time federal aid. However Fitch notes that past budgets have been quite conservative and believes year-end results will be better than forecast. The deficit includes a $1 million transfer out for debt service, which, together with $1.8 million of debt service fund balance and $6 million of debt service property taxes, will be used to meet the $8.8 million debt service payment in fiscal 2013. The year-end cash balances in the debt service fund would fall to about $500,000, which is the district's informal fund balance floor for this fund.

Going forward, the district plans to incrementally raise the tax rate and use some general fund balance for debt service over the next few years; the use of general fund balance will be driven by the magnitude of the tax rate increase the board determines in fiscal 2014. The district does not have a formal fund balance target, but Fitch views the presence of a significant fiscal cushion as a key credit offset to the high debt and concentrated taxpayer-base risk factors.

TEXAS SCHOOL DISTRICT LITIGATION

In February a district judge ruled that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system 'inefficient, inequitable, and unsuitable and arbitrarily funds districts at different levels...' The judge also cited inadequate funding as a constitutional flaw in the current system.

Fitch will monitor the appeal process of the suit, which may go directly to the state supreme court. If the supreme court upholds the lower court ruling, the state legislature will be directed to make changes to the system to restore its constitutionality. Fitch would consider any changes that include additional funding for schools a positive credit consideration.

DEBT PROFILE A CREDIT WEAKNESS, BUT NEAR-TERM DEBT PLANS LIMITED

Overall debt levels are very high, particularly on a per capita basis, at $9,878. This debt calculation includes the accreted interest of CABs. The annual debt burden on the budget is also high at 18% of fiscal 2012 governmental fund spending and rises to 20% of spending in fiscal 2013. Annual debt service is level but the pace of amortization is slow, which also reflects use of CABs to minimize the tax rate impact on current taxpayers.

The district has approximately $6 million in remaining but unissued authorization from a 2008 bond election, but has no definite plans to issue the bonds. The recent slowdown in enrollment has provided the district a reprieve from building pressures, which Fitch believes will prevent increases to key debt ratios over the near term. The district's current debt service tax rate of roughly $0.25 per $100 of TAV is well below the $0.50 statutory cap for new issuance approval, due in large part to the recent tax rate swap.

Pension liabilities are not a credit pressure. The district contributes to the state's Teacher Retirement System (TRS), a cost-sharing multiple-employer plan, and also provides other post-employment benefits (OPEB) through TRS. Combined pension and OPEB spending by the district was less than 1% of fiscal 2012 governmental fund spending.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

(Source: Business Wire )
(Source: Quotemedia)

Advertisement
Advertisement



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.