Fitch Rates Schertz-Cibolo-Universal City ISD, Texas 'AAA' PSF; 'A+' Und

Business Wire, Nov 14, 2002

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--Nov. 14, 2002

Schertz-Cibolo-Universal City Independent School District, TX's (the district) $31,591,961 unlimited tax school building and refunding bonds, series 2002 are rated 'AAA' by Fitch Ratings. The bonds are scheduled to price on Nov. 18 via a syndicate led by SWS Securities. The rating is based on a guarantee provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. Additionally, an underlying rating of 'A ' is assigned to the series 2002 bonds as well as $63.25 million in outstanding unlimited tax bonds, reflecting credit quality without consideration of the guarantee. Dated Nov. 15, 2002, the bonds are expected to be issued as a combination of current interest and capital appreciation bonds. Current interest bonds maturing on or after Aug. 1, 2012 are subject to optional redemption beginning Aug. 1, 2011 at par plus accrued interest. The capital appreciation bonds are not subject to redemption prior to stated maturity. The bonds are secured by an unlimited ad valorem tax pledge as well as a guarantee from the Texas Permanent School Fund. Bond proceeds will fund various school improvements, refund a portion of outstanding obligations, and pay costs of issuance.

The Rating Outlook is Stable. Credit strength is provided by the district's trend of favorable financial performance and solid tax base growth. Debt position is aided by significant state support on the district's debt, including the current offering. Such support, coupled with steady assessed valuation growth, continues to benefit the district's interest and sinking tax rate, which is considerably lower than previously projected. Principal amortization, however, is below average. While the district is considering reducing its fund balance, it is anticipated that reserves will be maintained at appropriate levels.

The district serves a growing area north of San Antonio, and easy access to the extensive metropolitan employment base, coupled with the availability of more affordable land, continues to spur development. Taxable values have increased nearly 83% since 1997 with the trend projected to continue. In addition to strong residential growth, commercial development along Interstates 35 and 10, both of which are major thoroughfares, continues at a steady pace. Guadalupe County unemployment levels remain well below state and national averages, at 3% for 2001, while area median household incomes are slightly below average. However, given recent growth and construction of more middle-income homes, wealth levels are expected to rise.

Fiscal 2001 results point to another year of strong operating results, with about a $500,000 increase to the general fund balance. The fiscal 2001 general fund balance represented 25.6% of operating expenditures, transfers out, and other uses; the unreserved, designated balance stood at a healthy 24.6%. Although designated for construction and equipment, $5.4 million in this reserve along with $3.1 million in the undesignated, unreserved portion of the general fund balance can be used for any lawful purpose and provides significant financial flexibility.

For fiscal 2002, the budget incorporated higher than realized enrollment projections based on a demographic study of the area. Despite strong residential construction, enrollment actually recorded a 0.8% decline in 2002. As a result, budget reductions were required to offset the overpayment in state aid. Fiscal discipline was evident with the elimination of the $2 million shortfall, which was achieved through a combination of personnel cuts (mostly administrative positions) and expenditure savings. Officials estimate essentially balanced operations for the close of fiscal 2002. In the future, the new administration may consider reducing its fund balance level, particularly given the operating impact of new schools coming on line over the next several years. However, appropriate reserves are expected to be maintained at levels consistent with the current rating assignment.

The current offering represents the final phase of borrowing associated with a $76.9 million authorization approved by district voters in May 2000. The district's debt position is aided by substantial state aid support for debt service (46.8%). Debt ratios, adjusted for state support, are moderate to above average at 4.2% and 5.9% for direct and overlapping debt to taxable values, respectively. Payout is slow, with 30% paid within 10 years. Facility needs are believed to be sufficient for the next five to seven years, particularly given the slower enrollment growth.