Fitch Rts Hernando County Schools, FL $37.3MM COPs 'A-'; Outs GOs 'A'

Business Wire, Oct 30, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 30, 2003

Fitch Ratings assigns an underlying 'A-' rating to Hernando County School Board, Florida's (the district) $30 million certificates of participation (Florida School Boards Association, Inc., Florida School Districts Financing Program), series 2003A and $7.3 million refunding certificates of participation (Florida School Boards Association, Inc., Florida School Districts Financing Program), series 2003B.

The 'A-' rating is also assigned to the district's $21 million in outstanding certificates under the master lease program. Fitch also assigns an 'A' rating to the district's approximately $25 million in outstanding general obligation bonds. The series 2003A and 2003B certificates, expected to be insured, are scheduled to price through negotiation with A.G. Edwards & Sons during the week of Nov. 10. The Rating Outlook is Stable.

The 'A-' rating on the 2003 certificates reflects the district's underlying credit quality, strong lease provisions, and the essentiality of leased assets. Lease payments are subject to appropriation. The 'A' rating on the district's outstanding general obligation bonds reflects the district's improved financial performance after several years of fiscal imbalance, above average debt amortization, and Hernando County's below average wealth levels and limited economy.

The series 2003 certificates are secured by lease payments made by the district to the trustee, as assignee of the Florida School Boards Association, which is a not-for-profit corporation. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the school board from available revenues. The series 2003A and 2003B certificates are being issued pursuant to a master lease purchase agreement, which provides additional incentives for appropriation. In the event of non-appropriation, the board must surrender all leased facilities to the trustee. Two of the district's 18 existing schools, and additions to several others, are included in the master lease program.

Hernando County is located north of Tampa on the west coast of Florida. After experiencing very rapid growth in the 1970s and 1980s, population in the county increased at a more moderate rate of 29% in the 1990s to reach a 2002 estimated population of 138,740. Much of the current population growth is fueled by residents who commute to Tampa. Major industries in the county include limestone mining, cement production, dairy and cattle production, construction, manufacturing and distribution. The county unemployment rate of 5.4% in 2002 is slightly below state and national averages. Wealth levels are below average.

General fund results have stabilized in recent years after drawdowns from fiscal 1999-fiscal 2001. In fiscal 2001, the district transferred $2.4 million to the internal service fund to cover losses in the self-insurance program, and the year ended with an unreserved general fund deficit of $1.2 million. After an additional transfer in fiscal 2002, the internal service fund was closed. In fiscal 2002, the district began the common practice of transferring a portion of the capital outlay millage to the general fund to fund maintenance costs, and ended the year with a $1.6 million surplus. Fiscal 2002 unreserved general fund balance equaled $1.4 million, or 1.5% of spending. Unaudited fiscal 2003 results are positive, and the unreserved general fund balance is expected to equal $2.8 million, an adequate 2.9% of spending. The fiscal 2004 budget shows the district increasing general fund balance at year-end.

School district enrollment has increased at the annual average rate of 3.7% over the last five years, with rapid 8% growth in the 2002-2003 school year, due to new developments coming on-line. The district's most recent capital improvement plan is for fiscal 2002-2006. This plan totals $61 million and includes the construction of three new schools. The district's debt levels are low, and amortization is above average, with 65% of principal retired within 10 years. Series 2003A proceeds will be used to fund the construction of a new school for grades kindergarten through eight, and series 2003B proceeds will be used to refund all of the district's outstanding series 1993 certificates.