Fitch Rates Canutillo Independent School District, TX `A-'

Business Wire, July 18, 2001

Business Editors

NEW YORK--(BUSINESS WIRE)--July 18, 2001

Fitch has assigned an `A-' underlying rating to Canutillo Independent School District (ISD), TX's upcoming $23,000,000 variable rate unlimited tax school building bonds, series 2001 bond issue and to the district's $13,369,000 outstanding general obligation bonds.

The series 2001 bonds are expected to sell competitively on July 18. Upon completion of its review of the legal documentation, Fitch expects to assign a long-term rating based on a guarantee provided by the Permanent School Fund (PSF) of Texas whose financial strength is rated `AAA' and a short-term rating based on a liquidity support in the form of a standby bond purchase agreement provided by The Toronto-Dominion Bank.

The `A-' underlying rating reflects the district's continued financial improvement, ample liquidity, growing tax base, and moderate debt burden mitigated by substantial state support. The rating also reflects the district's tax base concentration, low wealth levels, and above average but declining unemployment rates. The district is experiencing moderate enrollment growth averaging 3.3% annually, however, district officials anticipate growth to increase to 4% in coming years. The district covers 67 square miles in El Paso County and includes a portion of El Paso and neighboring rural areas. The district benefits from the El Paso metropolitan strategic location and extensive transportation network, serving as a major port of entry linking Mexico, Texas, and New Mexico

Taxable values within the district are dominated by the industrial sector, which represent almost one-third of total assessed valuation (AV). The Hoover Co. (with two plant locations) is the largest taxpayer, representing 13.3% of total taxable AV, with the leading ten taxpayers representing over 27%. Taxable AV has grown by an annual average of 7.5% over the last five years. Economic growth is projected to continue, led by the completion of the Artcraft Highway -- a six lane commercial thoroughfare that connects the new port of entry from Mexico and feeds into I-10.

After depleting its undesignated fund balance in fiscal 1996, the district's fiscal operations have improved annually, restoring its reserves to 10.9% of expenditures and transfers out in fiscal 2000. The district's fund balance target is 10%. State education funds are the largest source of district revenue, totaling $19.9 million in fiscal 2000 or 70.1% of general fund revenues. Because the district's AV growth has exceeded its enrollment growth, local sources have climbed from 16.0% of general fund revenues in fiscal 1996 to 21.0% in fiscal 2000. The maintenance tax rate was increased in fiscal 2001 by over $0.13 per $100 AV in order to maximize state funding. Due to conservative AV growth assumptions, fiscal 2001 revenues are $3 million above fiscal 2001 budget projections. After expenditures for one-time capital outlays, a modest operating surplus is projected for the end of fiscal 2001.

The current offering represents the entire $23 million authorization approved by 95% of voters in December 1999. Proceeds of the current offering will fund construction of the district's second high school with a capacity of 1,800 students, providing sufficient capacity for 5 - 8 years, assuming 4% annual growth in average daily attendance. Overall debt burden is manageable at $1,003 per capita and 4.8% of taxable AV, adjusted for substantial debt service support from the state's Existing Debt Allotment and Instructional Facilities Allotment programs. Including $6 million of lease revenue bonds of the district's public facilities corporation (PFC), the district's debt levels rise to $1,089 per capita and 5.2% of taxable AV. Due to the bonds mandatory redemption dates, amortization is average at 50.8% in ten years. Including PFC debt increases pay out to 53.7% in ten years. Debt service as a percentage of expenditures was moderate at 8.3% in fiscal 2000.