Fitch Rates Hays CISD, Texas' 'AAA' PSF Guarantee; 'A-' Underlying

Business Wire, May 14, 2003

Business Editors

AUSTIN, Texas.--(BUSINESS WIRE)--May 14, 2003

Hays Consolidated Independent School District, Texas (the district) approximately $9,974,999.10 unlimited tax refunding bonds, series 2003 are rated 'AAA' by Fitch Ratings. The rating is based on the guarantee provided by the Texas Permanent School Fund, whose insurer financial strength is rated 'AAA' by Fitch. In addition, an unenhanced rating of 'A-' has been assigned to the current offering and affirmed for the district's $130,285,000 in outstanding unlimited tax school bonds.

The bonds are scheduled to sell May 15, 2003 via negotiated sale. Dated May 1, 2003, the issue consists of serial bonds maturing from Aug. 15, 2003-2004 and 2006-2008, and capital appreciation bonds maturing Aug. 15, 2005. The bonds are not subject to redemption prior to maturity. The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district. Proceeds will be used to refund outstanding debt for debt service savings and to pay costs of issuance. The Rating Outlook is Stable.

The 'A-' underlying rating reflects adequate and increasing fund balances despite growth pressures, a substantial operations and maintenance tax rate margin, and strong tax base growth buoyed by its proximity to the large and diverse Austin-San Marcos area economy. The rating also reflects moderately high debt levels and slow principal amortization. However, demonstrated and anticipated growth mitigate concerns over the district's debt burden. The district is centrally located along the Interstate Highway (IH) 35 corridor between Austin and San Antonio and is reportedly the fourth fastest growing school district in the state. Since 1996, enrollment has increased an average of nearly 7% annually, and current district projections anticipate student enrollment totaling more than 16,000 by 2010. Currently, more than 8,600 students attend the district's 13 campuses.

The district's economy has been based historically on agriculture, but residential construction has increased rapidly in recent years, coupled with some additional commercial and retail franchises, as housing pressures in Austin have expanded development southward and growth in San Marcos has expanded development northward. Overall, population in the district has increased as rapidly as enrollment, averaging 7% annually since 1995. The district's tax base has expanded well above its population growth, averaging nearly 17% annually over the same period and with a growth of 24% between fiscal 2002-2003.

Financial operations are improved from pre-1998 levels, when the district retained minimal fund balances. For fiscal 2002, the district maintained a general fund balance equal to 9.5%, or 35 days of operating expenditures. The district anticipates a balanced budget for fiscal 2003.

Debt ratios are moderately high and are reflective of enrollment growth pressures, which necessitated bond issues in recent years for construction of new facilities. Including receipt of state funding, overall debt totals a moderately high $2,382, or 5.7% of assessed valuation, based on fiscal 2003 state funding levels for outstanding debt. However, actual and projected growth in property valuation, along with improved fiscal policies, mitigates some concerns related to the debt burden. The district's amortization is average, with 55% of the principal due in 10 years. However, taking into consideration the slow payout of capital appreciation bonds, amortization slows markedly, reflective of prior debt issuances structured to coincide with projected future tax base growth.