Fitch Rates Burleson ISD, Texas' $82.6MM GOs 'AAA' PSF/'A' Underlying
2008-07-23 22:40:07 -
- Fitch Ratings assigns an 'AAA' rating to Burleson Independent School District, Texas' (Burleson ISD, or the district) $82.6 million unlimited tax school building bonds, series 2008, based on a guaranty provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying rating of 'A' to the series 2008 bonds and affirms the district's approximately $147 million in outstanding parity bonds. The Rating Outlook is Stable.
Scheduled for a competitive sale July 31, 2008, the bonds are direct obligations of the district, secured by the proceeds of an unlimited ad valorem tax levied against all taxable property within the district. The bonds are further secured by the Texas Permanent School Fund guaranty. Proceeds will be used to finance various school facility projects and pay costs of issuance.
The underlying 'A' rating is based on the district's strong tax base growth, continued solid financial reserves, and high debt levels with very slow amortization. Given ongoing and planned development, additional credit risks include operating and capital pressures associated with continued enrollment growth, although the area's housing construction slowdown has recently lessened these pressures somewhat. However, current financial performance and expected tax base growth suggest the district will be able to maintain its financial profile satisfactorily over the near term.
Burleson ISD is located in the northern portion of Johnson County and south central portion of Tarrant County, approximately seven miles south of Fort Worth, along Interstate Highway 35 West. The district contains the city of Burleson (general obligation bonds rated 'A+' by Fitch), which is the principal commercial center. With an estimated 2007 population of nearly 34,000, the city has experienced rapid growth at a rate of almost 7% annually since 2000. Affordable land, new transportation routes, and proximity to the Fort Worth-Arlington metro area have in recent years spurred residential development primarily in the north and western portions of the district, although estimates indicate only 40% of the district is currently built out. Tax base growth, which has been historically weighted toward residential property values, continues to outpace student enrollment gains at 12% annually over the past five years. Various properties within the district's boundaries are located in workable portions of the Barnett Shale, one of the United States' largest natural gas fields, and starting in fiscal 2008, mineral values contributed to a small portion of the district's tax base. However, Fitch anticipates that mineral values will contribute more substantially to the district's tax base over the near term with additional drilling and exploration in the area.
In fiscal 2008, the district's enrollment reached almost 9,000 students, having grown at an annual average rate of 5% since fiscal 2003. Like many other Texas school districts, Burleson ISD experienced an enrollment slowdown in fiscal 2008, due in large part to a slowdown in housing construction. Accordingly, enrollment growth projections have been revised downward over the next three fiscal years, although enrollment is projected to grow at around 400-500 students annually, due in part to new multi-family developments in the area.
The district's financial reserves have trended upwards since fiscal 2002, and audited results for fiscal 2007 continued that pattern. The district reported a very strong, unreserved general fund balance of $14 million or 27% of spending in fiscal 2007, which exceeds the district's informal operating reserve target of at least three months of expenditures. Fiscal 2008 results are anticipated to add between $1 million-$4 million to this cushion, due in large part to the district leasing its mineral rights on various properties. The district received an almost $3 million bonus payment from Chesapeake Energy Corporation (long-term IDR of 'BB' with a Negative Outlook), and over the near term, this agreement is expected to generate $700,000 annually for the district. Preliminary information regarding fiscal 2009 includes the expectation of a balanced budget with modest salary increases and new hires for the additional elementary schools that are scheduled to open August 2008. While an additional, discretionary operating tax levy might be sought from voters as early as 2008, district officials indicate it is more likely to occur in the latter half of 2009.
District debt levels are high and Fitch believes they will remain so considering ongoing growth pressures, even after factoring in state support for a portion of existing debt service. The current offering represents the second portion of the district's largest ever authorization at $259 million, approved by about 60% of the voters in November 2006. The current offering will be used primarily for constructing the first phase of a new high school that is expected to open by 2010. The remainder of the authorization is anticipated to be issued in 2009 and is expected to meet the district's capital needs for the next three to four years. Amortization of principal is very slow, even for a fast-growth district, with about 17% retired in ten years.
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.
Fitch Ratings, Austin
Rebecca C. Moses, 512-215-3739
Andy Kaaz, 512-215-3730
or
Media Relations:
Sandro Scenga, 212-908-0278, New York
