Fitch Rts School Board of Lee County, FL $21.8MM Rfdg COPs 'A+'

Business Wire, Feb 6, 2004

Business Editors/Education Writers

NEW YORK--(BUSINESS WIRE)--Feb. 6, 2004

Fitch Ratings assigns an underlying 'A+' rating to the School Board of Lee County, Florida's (the district) approximately $21.8 million refunding certificates of participation, series 2004C. The bonds are expected to be insured by Financial Security Assurance, Inc., whose insurer financial strength is rated 'AAA' by Fitch Ratings.

The series 2004C bonds are scheduled to price Feb. 9 through a syndicate led by A.G. Edwards & Sons, Inc. Fitch also affirms the 'A+' rating on the district's approximately $427 million in outstanding certificates under the master lease structure (prior to this refunding). The Rating Outlook is Stable.

The 'A+' rating is based on the Lee County school district's strong financial management resulting in robust general fund balance levels, the county's diversifying economy, and project essentiality enhanced by the master lease structure. Sizable capital needs are likely to cause debt levels to increase substantially over the next several years. This risk is partly mitigated by strong tax base growth in the district. Overall debt amortization has slowed and is now below average, with only 30% of principal retired within 10 years.

The certificates of participation (certificates, or COPs) are secured by lease payments made by the district to the trustee, as assignee of the Lee County School Board Leasing Corporation (the corporation), a Florida 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. The master lease program structure provides strong appropriation incentives for the district, since non-appropriation would force the school board to surrender all leased assets to the trustee, except for certain designated equipment. Currently, all or some of 34 schools of the district's total of 74 schools are financed under the master lease.

Strong financial management has resulted in operating surpluses in each of the past four years. The unreserved general fund balance increased from $8 million in fiscal 1999 (2.6% of spending) to $37.1 million in fiscal 2002 (11.2%), a sizable fund balance for a Florida school district. Unaudited fiscal 2003 results show the district ending the year with a $12.3 million operating surplus due in part to higher than expected property tax revenue and lower than anticipated salary and health insurance costs. The district expects to draw down about $3 million of general fund balance for nonrecurring expenditures in fiscal 2004.

School district enrollment has increased at the annual average rate of 4.2% over the last three years, to reach 62,568 students in school year 2002-2003, and growth is expected to continue at this rate. The district's fiscal years 2004-2008 capital improvement plan totals $988 million and covers the construction costs of 30 new schools, including the five schools funded with this issuance. While funding sources for $366 million of the plan have not yet been determined, the district is currently only using 0.76 mill of the capital outlay levy for debt service on the district's certificates, providing some financial flexibility to fund capital improvements. The district is evaluating its funding options for the remainder of the plan.

The county's economy is diversifying from its traditional tourism and retirement-related industries, and tax base growth continues to be strong. The county is home to both Southwest Florida International Airport (revenue bonds rated 'A' by Fitch Ratings) and Florida Gulf Coast University. Downtown Fort Myers is the business and finance center for southwestern Florida. The county unemployment rate consistently has been lower than that of the state and nation.