2009-11-17 22:41:03 -

As part of ongoing surveillance, Fitch Ratings affirms the 'A+' rating for Schertz-Cibolo-Universal City Independent School District, Texas' (the district) approximately $285 million in outstanding unlimited tax (ULT) bonds. The Rating Outlook is revised to Stable from Negative.

The 'A+' rating reflects the district's consistently solid and recently strengthened financial performance within a fast-growth enrollment environment, offset by declining yet still

high debt levels, below-average amortization, and slowed tax base growth. The Outlook revision to Stable from Negative reflects the slower pace of additional debt plans from earlier expectations, which should keep debt levels in line with comparably-rated credits. Initially, Fitch was concerned that Base Realignment and Closure (BRAC) plans would lead to a substantial influx of military families over the near term, which would be accompanied by surging enrollment. While the district likely will face future enrollment pressures, the district currently has capacity in its existing facilities for many of the new students associated with BRAC, thereby alleviating immediate growth pressures. Also, over the long term, Fitch believes prospects for continued, albeit more moderate, tax base growth are positive, helping minimize the tax rate impact of future authorizations and moderating the credit impact of the district's debt profile. The key rating driver is maintenance of the district's strong financial cushion, given likely budget pressures from ongoing enrollment growth and debt levels.

Largely residential in nature and adjacent to Randolph Air Force Base, the district benefits from its location in the broad economic and employment base of the San Antonio metropolitan area. Guadalupe County's unemployment rate rose to 6.7% in September 2009, but remained below metro, state, and U.S. rates, comparable to historical trends. While the district historically has experienced strong levels of tax base growth due to the availability of affordable land, fiscal 2010 taxable assessed valuation (TAV) grew at a more modest but still healthy pace of about 8% from the prior year, reflecting a weakened housing market. As a result of area residential development, average daily attendance (ADA) grew very rapidly, increasing at an average annual pace of about 9% between fiscal years 2003 and 2007. With the economic slowdown, however, annual enrollment growth trends have recently slowed to about 6% over the past three years, bringing the district's total ADA to its current 11,000 in fiscal 2010. Over the near term, additional students from the military families moving to the district as part of BRAC will boost enrollment trends, although district officials project the total impact on enrollment will not be fully known until mid-2010.

Finances are a credit positive. Tenured district management has continued to generate strong financial results within a fast-growth enrollment environment. The district reported a very strong unreserved general fund balance of $23.7 million or just over 34% of spending in fiscal 2008, which was well above its informal operating reserve policy of maintaining at least three months of expenditures. Liquidity has also improved and reached $22 million or almost four months of cash on hand in fiscal 2008. The district anticipates adding another $1.5 million to reserves by fiscal 2009 year-end. The fiscal 2010 general fund budget of approximately $86 million was adopted as balanced and includes additional increases in reserves, assisted in part by conservative budgeting of enrollment. The district has no immediate plans to approach voters for additional operating tax rate increases.

Debt levels have declined somewhat since Fitch's last rating, but remain high. The district's direct debt burden now approximates $4,000 per capita and 7% of TAV, even after consideration of state support for a portion of existing debt service. Including overlapping debt, overall debt levels rise to about $5,200 per capita and 9.2% of TAV. The debt service burden is above average at about 15% of spending in fiscal 2010.

Amortization is slightly below average at about 47% of principal retired in 10 years, but good for a fast-growth Texas school district. The district has no remaining authorized but unissued debt and there are reportedly no near-term debt plans in place, since district officials report additional capacity in their existing facilities that will accommodate many of the BRAC students and the complete scope of BRAC on district enrollment is not yet fully known.

Note that while Fitch considered the following parity bonds in its analysis and affirmed all outstanding ULT bonds in its previous commentaries, the bonds listed below did not have an explicit rating assignment. Therefore, Fitch explicitly assigns an 'A+' underlying rating to the ensuing bonds as follows.

--ULT school building bonds, series 1997A.

In addition, Fitch assigns an 'AAA' rating on the series 1997A bonds based on a guaranty provided by the Texas Permanent School Fund, whose insurer financial strength is rated 'AAA' by Fitch. The full rating history is now available on Fitch's web site at ' www.fitchratings.com : '.

The Rating Outlook is Stable.

Additional information is available at ' www.fitchratings.com : '.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 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 Ratings, AustinRebecca Moses, 512-215-3739Gabriela
Gutierrez, 512-215-3731orMedia Relations:Cindy
Stoller, 212-908-0526, New YorkEmail: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com