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MOODY'S ASSIGNS Aa1 UNDERLYING AND Aaa ENHANCED (TEXAS PSF GUARANTEE) RATINGS TO SPRING BRANCH ISD (TX) SERIES 2010 GOLT, 2010A AND 2010B (TAXABLE) GOULT BONDS

04 Nov 2010

AFFECTS 716M IN PARITY DEBT, INCLUDING THE CURRENT ISSUES

Primary & Secondary Education
TX

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

Limited Tax Refunding Bonds, Series 2010

Aa1

Aaa

  Sale Amount

$42,700,000

  Expected Sale Date

11/10/10

  Rating Description

General Obligation Limited Tax/Texas PSF Guarantee

 

Unlimited Tax Schoolhouse Bonds, Series 2010A

Aa1

Aaa

  Sale Amount

$25,000,000

  Expected Sale Date

11/10/10

  Rating Description

General Obligation Unlimited Tax/Texas PSF Guarantee

 

Unlimited Tax Schoolhouse Bonds Taxable Series 2010B (Build America Bonds-Direct Payment to Issue)

Aa1

Aaa

  Sale Amount

$75,000,000

  Expected Sale Date

11/10/10

  Rating Description

General Obligation Unlimited Tax/Texas PSF Guarantee

 

Opinion

NEW YORK, Nov 4, 2010 -- Moody's Investors Service has assigned Aa1 underlying and Aaa enhanced (PSF) ratings to Spring Branch Independent School District's (TX) $42.7 million Limited Tax Refunding Bond, Series 2010, $25 million Unlimited Tax Schoolhouse Bonds, Series 2010A and $75 million Unlimited Tax Schoolhouse Bonds Taxable Series 2010B (Build America Bonds-Direct Payment to Issuer). The par of the Series 2010A and 2010B bonds is preliminary and subject to change; however, the combined total of the two series will be $100 million. Concurrently, Moody's has affirmed the Aa1 rating on the district's $716 million of outstanding general obligation debt, including the current issues. Proceeds from the bonds will finance the construction of two new elementary schools, a transitional campus, and renovation and upgrades to existing facilities.

RATING RATIONALE UNDERLYING RATING

The refunding bonds are secured by a general obligation limited tax pledge whereas the Series 2010A and B bonds are secured by a general obligation unlimited tax pledge. The Aa1 rating additionally reflects the district's large tax base that has fared better than surrounding jurisdictions in the current economic cycle, favorable socioeconomic profile, historically stable financial operations facing near term operating pressures, and elevated debt burdens with plans for additional borrowing.

RATING RATIONALE ENHANCED RATING

In addition to the underlying rating, we have assigned a Aaa enhanced rating to the current sale provided by a guarantee of the Texas Permanent School Fund (PSF). The Aaa rating reflects our assessment of the PSF's ability to make payments on the guarantee relative to the substantial value of the fund corpus. Additional credit considerations include: the PSF's constitutionally protected corpus, the general obligation credit quality of the Texas school district guaranteed by the fund, an investment portfolio that provides satisfactory coverage and liquidity given our estimated probability of calls on the guarantee, and strong legal mechanics that facilitate timely reimbursement to the PSF should guarantee payments occur. The enhanced rating also reflects an expected increase in PSF leverage to no more than 3.5 times PSF cost value. For additional information on the PSF program, please see Moody's High Profile Ratings Update "Texas Permanent School Fund (PSF)" dated April 2010.

STABLE TAX BASE IN HOUSTON MSA

Spring Branch ISD encompasses 41 square miles in Harris County (G.O. rated Aaa), approximately 10 miles from the central business district of the City of Houston (G.O. rated Aa2). The district is primarily a residential community (70% of assessed valuation), reflecting the favorable proximity to the Houston employment center. The tax base has grown at an average annual rate of 6.6% over the past five years, reaching $18.2 billion in fiscal 2011 (inclusive of 2.8% of value that remains uncertified). Fiscal2011 values reflect the first taxbase decline in more than a decade, with values falling a modest 1.7%, reportedly reflective of softness in residential values. This decline, however, is well below the countywide decline of 5% and the decline of neighboring City of Houston at 5.5%. While the district is largely developed, modest ongoing residential and commercial development largely along the I-10 corridor and reinvestment in existing housing stock as well as tear downs are expected to facilitate moderate tax base growth following the current economic cycle.

Wealth levels within the district are high with per capita income and median family income (from 2000 U.S. Census) at 149.3% and 120.2% of state medians, respectively. Officials report the residential real estate market has remained stable as measured by average days on market of 77 days up modestly from 62 days in 2008. Given the district's residential properties are largely built out, enrollment has fluctuated with the school-aged population cycle as well as economic cycles. The district enrolled 32,512 students in fiscal 2010 with modest annual growth expected to yield enrollment of 33,500 by 2020.

MODEST USE OF RESERVES FOR OPERATIONS FORECAST FOR 2010; STRUCTURAL BALANCE EXPECTED TO BE REGAINED IN FISCAL 2011

Moody's expects the district's strong financial management team will continue to ensure maintenance of a satisfactory financial position despite its role as a property wealthy district, requiring recapture payments in most years. Following operating surpluses in the last four fiscal years (the district added $14 million to reserves between fiscal years 2006 and 2009), the General Fund balance at FYE 2009 (June 30) was $72 million, or a strong 28% of General Fund revenues. While the fiscal 2010 budget included an increased $11 million use of General Fund balance (from $10 million in fiscal 2009 original budget), including $5 million budgeted for recurring operational expenditures, unaudited results reflect a more modest $3 million draw on reserves, of which $2.5 million reflects one time capital expenditures. The district's adopted 2011 budget included a more modest appropriation of $3.5 million of fund balance and following $9 million in budget reductions early in the fiscal year, is expected to result in balanced operations. Fund balance, is however, expected to be reduced by an additional $3 million for one time capital projects originally budgeted but not expended in the prior fiscal year. Despite the projected two consecutive years of drawing from reserves, the General Fund balance is expected to meet the board adopted policy requiring 19% of budgeted expenditures at FYE 2011. Future rating actions will reflect management's ability to regain structural balance and maintain satisfactory reserves.

Property taxes comprised 76% of operating revenues while state program revenues contributed 24% in fiscal 2009. The district currently levies the maximum-allowable maintenance and operating (M&O) tax rate of $10.90 per $1,000 of assessed valuation (AV), including $0.40 for local enrichment that is not subject to recapture. The district maintains the ability to ask voters for additional M&O taxing authority (of up to $1.30/$1,000), however, as these funds would be subject to recapture, there are no plans to pursue this option at this time. The district is one of seven in the state classified as a 2784G district that has voted a combined tax rate total limitation of $20.00/$1,000-as compared to the district's current rate of $13.90/$1,000 ($10.90 O&M and $3.00 debt service). This cap does not constrain the ability to set the debt service tax rate as necessary for the unlimited tax bonds. If the total tax rate exceeded the $20.00 limit, the M&O tax rate would have to decrease to offset this overage. As the legal cap currently for O&M is 12.20 and the cap on debt service (at time of issuance) is 5.00, the practical limitation is well below the $20.

ELEVATED DEBT PROFILE WITH PLANS FOR ADDITIONAL BORROWING

Inclusive of the current sales, the district's debt burdens are elevated at 3.9% direct and 6.7% overall, both expressed as a percentage of fiscal 2011 (preliminary) assessed valuation. Amortization is consistent with similarly rated Texas school districts with 41% of principal retired in 10 years. The current offerings are the third installment of $597 million authorization approved by voters in November 2007 to renovate and replace aged facilities; post-sale, the district will have $172 million remaining in debt authorization. Officials report plans to exhaust this authorization over the next three years. The district currently has no exposure to variable rate debt or interest rate swaps; however, the debt management policy allows for the use of these debt tools but states variable rate debt may not exceed 20% of the district's total debt portfolio. Moody's believes the district's debt position will remain elevated over the long term given the current payout rate and plans for additional borrowing. Additional debt issuance without considerable tax base expansion could result in negative rating pressure.

KEY STATISTICS

2010 Enrollment: 33,500

FY 2011 Full Value: $18.2 billion

FY 2011 Full Value per Capita: $106,713

Direct Debt Burden: 3.9%

Overall Debt Burden: 6.7%

Amortization of Principal (10 years): 41.3%

FY 2009 General Fund Balance: $71.9 million (28.1% of General Fund revenues)

Per Capita Income (2000 U.S. Census): $29,281 (149.3% of State; 135.6% of U.S.)

Median Family Income (2000 U.S. Census): $55,124 (120% of State; 110% of U.S.)

Parity debt outstanding: $714M (General Obligation Limited Tax: $311.2M; General Obligation Unlimited Tax $ 402.7M)

What could change this rating up:

"Significant taxbase growth

"Stabilization and strengthening in financial position

What could change this rating down:

"Material decline in financial flexibility

"Further, significant taxbase declines

The principal methodology used in rating Spring Branch Independent School District (TX) was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and parties not involved in the ratings.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Robyn Rosenblatt
Analyst
Public Finance Group
Moody's Investors Service

Leslie Lukens
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


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MOODY'S ASSIGNS Aa1 UNDERLYING AND Aaa ENHANCED (TEXAS PSF GUARANTEE) RATINGS TO SPRING BRANCH ISD (TX) SERIES 2010 GOLT, 2010A AND 2010B (TAXABLE) GOULT BONDS
No Related Data.
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